Saturday, December 1, 2007

The Mortgage Freeze

Get set for the big mortgage freeze
Borrowers coming to the end of fixed-rate deals should prepare not only for far higher rates but also delays in getting loans approved

“House prices fell 25% in real terms in the 1970s. That is not what I’m predicting, but it gives you an idea of what has happened in the past.”

Real housing prices in the U.S. appear to have peaked in January, 1979 as seen here. The fall was just as impressive as the climb (and ushured in two recessions).

The 3 month seasonally adjusted and annualized inflation rate peaked in March, 1980 at 17.7%.

My inflation mood continues to lean towards deflation in the short-term and inflation in the long-term. We'll see just how well Bernanke can print money to offset the outgoing tide. I'm certainly willing to give him the benefit of the doubt, until proven otherwise. Further, assuming I am right (big assumption!) I'm also not convinced we'll simply slide into 1980s level prosperity generation in the aftermath.

Shaded areas represent recessions.

Source Data:

St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
National Bureau of Economic Research, Inc.


Anonymous said...

SM, a tad off topic but have you ever seen or made graphs of the initial vs revised employment and unemployment numbers? The initial figures have been getting to be more and more of a joke, but the revised numbers; and particularly the survey numbers; might tell an interesting story. Just wonderin'

Anonymous said...


I think deflation short term is spot on, in order to have inflation it will require people and businesses willing to take on even more debt and banks willing to lend. I just don't see that coming down the pipe for the next couple of years at least. Government is also somewhat limited on tax relief and even more fiscal stimulus although I'm sure they will do their very best to do just that. I see a bailout coming at some point no way around it I'm afraid.
Labor force falling, retail sales falling, credit tightening, home prices falling, nothing in that spells inflation to me. Cash is king when you ain't got any and the bank won't lend any:-)


Stagflationary Mark said...


I haven't, although I did do a few charts showing the rise in the Not in Labor Force numbers. That certainly smells fishy (~2 million added since January).

I just hope that birth/death model isn't going to be the death of US(A) this go around.


I just don't see that coming down the pipe for the next couple of years at least.

If nothing else, Bernanke can't fix a problem he doesn't seem to see. He keeps dismissing the idea that a recession might be coming. If he's wrong, he'll lose even more credibility (he lost some serious credibility during the "subprime markets seems likely to be contained" era, in my opinion). Of course, should that come to pass he'll be losing credibility while many lose credit ability!

Anonymous said...
This comment has been removed by a blog administrator.
Stagflationary Mark said...

Deleted as SPAM. It isn't just for breakfast anymore! ;)