No Bubble Here-For Now
The bursting of the stock market bubble has led to a flood of deposits into credit unions, much of
But could the burst of a similar bubble in the mortgage markets come back to haunt credit unions?
Since April 2000, the Nasdaq bubble burst, the Internet Rush ended, dot-com companies laid off thousands and the
The combination of these factors recently prompted some observers to sound alarms of a second "bubble" that they
The good news, according to three experts who spoke with The Credit Union Journal, is a potential collapse of the
George Livermore, president of First American Real Estate Solutions and whose his company collects statistics on
Dr. Christopher Cagan, First American's director of research and analytics and holder of a doctorate in mathematics,
Housing costs are up 15% to 25% in many markets, but low interest rates have served as a counterweight, Cagan
"Because rates are down, mortgage payments are the same or less than in the 1980s, despite higher prices," he said.
International economist Edward Leamer, who authors the U.S. portion of the quarterly UCLA Anderson Business
"There is no symptom that would suggest the real estate market will be a bubble that bursts," Leamer said.
Dr. Cagan said a bubble would exist if prices were far above historical values, or if people were buying houses "on
Livermore said rather than simply looking at selling prices in an attempt to diagnose a problem, the nation's credit
California CUs Making More Mortgages
According to data supplied by the NCUA, CUs in California dramatically increased their percentage of mortgage
Just 12 months later, 626 CUs in the Golden State reported nearly $41.3 billion in loans, with nearly $22.4 billion of
Despite heavy layoffs in the technology companies in the Silicon Valley, housing prices in the San Francisco Bay
Leamer termed this method "Survivor Investing," named for the popular television show. However, it could just as
"The Bay Area is special. It benefited for several years from the Internet rush, but the only logic for buying a home
"This is a speculative, risky investment, and is definitely is not diversified," Leamer added. "Their jobs and their
For two years, Leamer has urged the Federal Reserve Board to slow the pace of interest rate cuts.
According to Leamer, the earlier cuts were not given a chance to work.
"Low rates of interest have stolen future sales of both houses and cars. People are accelerating their commitments,
With so many people rushing to buy real estate and automobiles to take advantage of low rates, Leamer said he is
What It Would Take
"If the Fed is forced to raise interest rates to contain inflation, then the housing market will go into the tank, and you
First American's Cagan said lenders who become too generous after several years of good experiences are the ones
"If the market does start to turn in a couple of years, credit unions and other lenders could be exposed," he said. "It is
Should the market turn, he added, some members may start looking for for unsecured loans.