Monday, March 9, 2015

Ironmanic, this

At Political Calculations, the Ironman notes a;
spurious the form of an eerie parallel between the growth trend of median new home sale prices with respect to the growth of median household incomes just before the first U.S. housing bubble topped out, and the current trend in the second U.S. housing bubble since April 2014....
Which is illustrated with a spiffy graph. Followed with a question;
Yes, those blue lines are indeed perfectly parallel to one another. So what do you think? Is history repeating itself? Or does it just rhyme from time to time?
At HSIB we've just delved into Peter Wallison's Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again.

In Chapter two of which, Wallison, after detailing how drastically the risk of default increases when home loans get outside the iron triangle of lower than 80% loan-to-value (20% down payments), FICO scores above 660 and debt to income ratios less than 38%, explains that the Dodd-Frank legislation creating a Qualified Residential Mortgage (QRM), initially used those standards to define a safe loan.

Until realtors, banks, and housing activists mounted opposition. So the new QRMs have no down payment requirement, nor minimum FICO score. Even with the hindsight that those types of loans made in the period 2005-08 were associated with a default or serious delinquency rate of 23%.

So we wouldn't be surprised if history is indeed repeating itself. Nor, we guess, would Peter Wallison.

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