With the housing market collapse have come all sorts of new words such as Alt-A loans, ninja loans, subprime, that leave many of us confused. This article by Jack Rosenthal from the New York Times take a stab at explaining some of the most commonly heard terms.
By the way an alternate Alt-A loan is one in which borrowers have excellent credit scores but can’t document their income and assets. Lenders are becoming increasingly concerned that these may be the next set of loans to default.
For those of you hoping that the housing market had bottomed out, the news released yesterday indicates otherwise. Fannie Mae reported losses amounting to $2.3 billion, while its country cousin, Freddie Mac’s last quarter losses amounted to $821 million - far more than had been anticipated.
While some experts believe prices have fallen enough to get a bargain, I believe that the news from the country cousins indicate house prices still have a way to go before they reach the bottom. This means if you are contemplating buying a new home, it might be a good idea to wait. For those of us who had counted on our homes to provide additional retirement income, this is not good news.
The purpose of the rebate checks was for people to spend thereby reinvigorating the economy and preventing it from falling into a recession. The reality is that faced with soaring debt and risking gas prices, some people are opting to save the money or use it to pay bills. As for the others, they’re spending their rebate on furniture, clothes and electronics and especially gas.
Experts predicted that we’d behave like we did in 2001, when we spent between 20 and 50 percent of our rebates. Because American spending equals 70 percent of our country’s economic activity, they believed the spending would keep the economy growing through the summer, after which they expected the effects to drop off. This would leave off where we started: a deteriorating job market, eroding paychecks, tight credit, and falling real estate prices.
How have economists predictions panned out? The economy expanded slowly from April to June – slower than economists expected. The reason it grew at all was because of increased spending by consumers and increased exports. The problem is that spending and exports can’t keep growing. In the case of the tax rebates, they have mostly been distributed. They bolstered spending, but they have not been enough to generate the type of activity that will continue after the cash has cycled through the system.
As of now the housing market is still in free fall, unemployment is trending up – the latest report shows unemployment rate is now at 5.7%, and there is a possibility that the anemic growth may be revised to show that it was really a contraction. With all this bad news do anyone believe we are not in a recession?
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