Several items pertaining to the perennially sunny real estate market came across my desk yesterday, reminding me of why we should always take the stock market’s innate inability to sniff out recession/depression with a grain of salt, if not a dose of humor. Indeed, so vast is the chasm that separates Wall Street from Main Street in the way each interprets the news that I hesitate to spin 50-year mortgages as other than a fabulous idea, lest some of you think me churlish. But there are nonetheless still a few of us left who would say that the very notion of a 50-year mortgage -- like reality TV, deep-fried Oreo cookies, time-shares and Paris Hilton -- is evidence of civilization’s steep decline.

(Click on image to imbibe its true grandeur)

Why 50-year-mortgages? Our friend Steven brings just the right amount of cynicism to bear on this question. He writes as follows:

“Read an article this week that indicated 'they' are looking for people for 50-year, fixed- rate loans/mortgages for housing. Sounds like a Fed deal to try to let the air out of the housing bubble slowly by getting more unqualified buyers ready to buy the ARMS that will go bust soon.

Who Cares?

“A person I know said, ‘Who cares? People only hold onto their places for five years.’  Someone should care. I'd not like to be holding a $200,000 note for fifty years when said 'value' drops to 100,000 credit clicks and I'm stuck for fifty years with no buyer to bail me out.  That is, even if I bought the distressed bankruptcy bargain 'note' for 125,000 credit clicks.

“Can you see what is coming, Rick? Someone is 30 years old and ties into a 50-year note at 200k clicks and then 'gets stuck' in the mortgage until they are 80 with an end value of 100k clicks - never having paid off the bank until DEATH!

“Well, maybe the thing will be worth 300k credit clicks in 50 years when the guy is 80 years old; but, a loaf of bread will be 'valued' at 100k credit clicks in discharge in Gary North's [hyperinflation] scenario. In my belief, there will be a point where that 50-year note for 200k credit clicks will be defaulted on. Someone will 'buy the bargain' for their third house, at 125k credit clicks '75k deflation' and default when the fee estate is valued at 75k credit clicks on everything they own, '50k deflation'.

“Mr. B[ernanke] seems to hope he can drag out reality with fifty-year mortgages. Good luck, my friends. Use=debt=trust, as long as one 'uses,' one is enfranchised to the current federal union of states scheme.”

We’ll All Be Dead

To paraphrase Keynes, in the long-run we’ll all be dead, so what’s the big deal about a 50-year mortgage? Someone else’s problem, for sure. But don’t think lenders haven’t been busy thinking “short-term” about troubles that have already begun to bugger the financial system. Late fees, for instance. Traditionally, late fees don’t apply to A-credit mortgages until a payment is more than ten days overdue. But anecdotal reports suggest that lenders and servicing companies are now extending that to 14 days. This not only give borrowers a little more time to receive another paycheck, it also allows lenders and servicing companies to artificially reduce their delinquency rate – traditionally considered to be a harbinger of increasing defaults and foreclosures.

Well, at least no one seems worried about the prospect of real estate values going down, since, if it were otherwise, mortgage money would dry up faster than dew on cactus. Trusting in this fact as we do, we are impervious to any anxieties that the following report from ML Research, issued yesterday, might cause:

Homebuying Intentions

“Homebuying intentions fell to 121 from 126 in January, the lowest since December 1990. This metric is now down more than 50 points from the May/03 peak. Speculative demand is at its lowest level since Oct/90.Those who say they are putting off a home purchase because prices are too high rose to 38% from 36% – highest since Dec/90.”

I’ll let my friend and fellow deflationist Jas Jain deconstruct that paragraph for you:

“To give you an idea what ‘intentions’ translate into, the New and Existing Home Sales will be down more than 50% and 55%, respectively. So, even without any price drop, housing’s effect on the GDP will be to subtract 5.0% from growth (direct and indirect contribution of residential housing at the peak in Q3 2005 was close to 10%). This is a clear sign of a recession ahead in 2006, as early as June. The Price Drop would be pure gravy for this ‘rare’ (as in steak) forecast.”