Meredith Whitney was on CNBC again this morning, predicting more doom for the housing market and the battered banks that are depending on its recovery. Whitney is now calling for a 40% peak-to-trough decline in house prices:
I think it’s going to be well worse than 33 per cent, and here’s why: If you look at the futures market, it’s indicating a range right around between 2002-2003 levels, when home ownership rates were actually higher, but fewer people can qualify for a mortgage because you’ve got to put 20 per cent down, and that’s a lot of money for people. Furthermore, then you’ve got to find a bank to lend to you, because, Countrywide’s not lending to you.
Whitney also noted that despite furious rate cuts from the Fed, mortgage rates remain stubbornly high. Instead of using lower rates to lend to would-be home-owners, banks are hoarding capital to bolster their balance sheets. Until banks feel confident enough to lend to each other and consumers, house prices (and bank stocks) will go nowhere but down.
If you don’t need capital you can get capital. If you need capital, you’re not going to get capital… No one has capital (and) no one wants to sell when your stock’s down 80 per cent. But more importantly, everyone’s just holding on.
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