The FRB’s April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices showed that:

In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on a broad range of loan categories over the previous three months. The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey.

In other words, it’s a lot harder to obtain financing.

Chairman of the Federal Reserve said in a speech yesterday that the decline in home prices was different this time and more flexibility in solving the problem is called for.

In a 10-page speech, Mr. Bernanke said (is 10 pages double spaced supposed to be significant?) that some regions of the country including California, Florida, Colorado and parts of the Midwest have experienced sharp increases in the number of homeowners who are delinquent on their mortgages, despite data that does not reveal the classic causes of foreclosures, like higher unemployment rates.

Instead, much of the problem can be attributed to a decline in home prices, which, Mr. Bernanke said, can “reduce the ability and incentive of homeowners, particularly those under financial stress for other reasons, to retain their homes.”

(image of lightbulb turning on) Borrowers were allowed to have mortgages they could not afford and speculators have less incentive to hold on to their properties. Economic vulnerability is made even more precarious by the vulnerability of the GSEs. (Today, Fannie Mae Posted unexpected losses associated with credit performance).

Bernanke’s comments on GSEs

Separately, the government-sponsored enterprises (GSEs)–Fannie Mae and Freddie Mac–could do more. Recently, the Congress expanded Fannie Mae’s and Freddie Mac’s role in the mortgage market by temporarily increasing the limits on the sizes of the mortgages they can accept for securitization. In addition, because the GSEs have resolved some of their accounting and operational problems, their federal regulator, the Office of Federal Housing Enterprise Oversight, has lifted some of the constraints that it had imposed on them. Thus, now is an especially appropriate time for the GSEs to move quickly to raise significant new capital, which they will need to take advantage of these new securitization and investment opportunities, to provide assistance to the housing markets in times of stress, and to do so in a safe and sound manner.

As the GSEs expand their role in housing markets, the Congress should move forward on GSE reform legislation, which includes strengthening the regulatory oversight of these companies. As the Federal Reserve has testified on many occasions, it is very important for the health and stability of our housing finance system that the Congress provide the GSE regulator with broad authority to set capital standards, establish a clear and credible receivership process, and define and monitor a transparent public purpose–one that transcends just shareholder interests–for the accumulation of assets held in their portfolios.

Bernanke actually says “Location, Location, Location”
There is significant locational disparity in the performance of housing markets across the country. Bernanke showed a very cool set of heat maps on a variety metrics.

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6 Responses to “[Credit Spiral] Declining Home Prices Primary Cause Of Declining Home Prices”

  1. jim says:

    These maps are fascinating, it’s a lot of fun to see all the differences. Amazing the sheer number of piggybacks in California and how a lot of the delinquency, by quintile, are located in the southwest.

  2. And even more importantly, the chairman of the Federal Reserve uses heat maps!

  3. […] someone with a professed love for visual representations of data, I was looking at this post by real estate analyst Jonathan Miller at his real estate blog, The […]

  4. Chris says:

    I’m waiting for a Red/Blue State mashup of this data. From casual observation it looks like the majority of issues are in Blue states. Come on Stephen Colbert, you can make a 2 minute bit out of this, I know you can!

  5. Blissex says:

    The main problem with all these heat maps is that they represent information by surface area and not by population of county/state.

    Also by local product would be interesting.

    «I’m waiting for a Red/Blue State mashup of this data.»

    But Red/Blue is not a state-based divide. It is not even counties (even if that is more helpful). It is finer than that: it is suburbs vs. cities vs. rural. It becomes averaged out at the state level depending on whether most of the population lives in suburbs or cities or rural areas.

    «From casual observation it looks like the majority of issues are in Blue states.»

    There are more issues in states with more population and higher incomes. Do you really think that the housing market is doing well in North Dakota?

    It happens that states with higher incomes tend to be more urbanized and currently most city voters tend to vote Democrat. But the driving factor for the housing boom

  6. eva says:

    I would be interested to know what the percentage decrease in house prices is compared to the increase and what the distribution is when broken down. From the way figure 5 reads, the decrease in price was not worth describing in detail. I can’t wait to see what the number are for 1st quarter this year.