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.) |
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| 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. |