Friday, August 26, 2005

Housing Sales: Down is Good, Up is Bad?

Floyd Norris tackles a very scary subject matter today regarding risky mortgage financing:

At issue is whether financial innovations that have made it easier for Americans to buy homes have also made the system less stable and more subject to shocks that could drive many from their homes.

A really interesting point he makes is that if sales of existing homes drop, that’s a good thing. If they stay high, that could be bad. Why? A slow-down would be more akin to a soft landing:

But if sales volume stays high, that could indicate that the mortgage innovations are hurting. Then we could see rising numbers of foreclosures as homeowners discover they cannot sell their homes for what they owe but also cannot pay their suddenly higher monthly mortgage bills.

Read the whole column.