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Bond Outlook April 19th

Bond Outlook [by bridport & cie, April 19th 2006]

The US Federal regulators have belatedly recognised that excessively easy credit for house purchases, typified by the wide availability of 0% deposit loans could actually have been contributing to the housing bubble. Guidelines were quietly changed a year ago, so quietly that it has taken six months for them to have an impact. Data show a fall in the yearly rate of change of bank home equity loans from plus USD 130 billion at end 2005 to minus USD 10 billion now. Combine this with a 5% fall in house values since October 2005, new home sales 21% off their peak, a 12% decline in purchase mortgage applications and a 20% fall in refinancing requests, and there can be little doubt that the housing bubble is deflating. (Thank you, John Mauldin and HMIC for these figures.)


While the impact of the end of this bubble is only just beginning to show in retail spending, the non-repeatability of the USD 250 billion from mortgage equity withdrawal in 2005 (according to Freddie Mac) must be putting US households under pressure.

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