The stock market took a hit and came back, the discount rate was cut, and things seem to be looking up. At least until you look at the big picture and what’s to come.

So what’s the current status of the bubble this week?

• Credit is still materially more expensive than it was 6 weeks ago. This reduces borrowing power of home buyers which will depress prices. The additional credit cost also makes a percentage of refinance candidates ineligible due to the increased debt burden of any new loan.
• Tie the above credit cost with severely tightened underwriting guidelines to drastically reduce the number of home buyers and home owners who now qualify for financing. Products that were commonly leveraged over the last 5 years by homeowners as “affordability” products are gone. Negatively amortizing option ARMs, interest only products and 40-year amortizing loans are disappearing (or already gone).
• Reduced documentation and stated income loans are disappearing or have been curtailed to the point of irrelevance. People who bought too much home, who made up their income, and took a short-term loan are now stuck and won’t be able to refinance.
• The freeze of market liquidity for non-agency loans - particularly jumbo loans - is just beginning impacting the hereto well-performing high-end housing market.
• The country’s continued negative savings rate leaves the first-time homebuyer market dead in the water as banks eliminate the majority of 100% financing options.

As Morgan over at BlownMortgage continues on to say:

Stay tuned, the roller coaster is just picking up speed…

And speed is picking up faster than anticipated for many subprime shops. NovaStar Financial is now cutting 37% of their workforce (about 500 employees):

Friday said it plans to cut about 500 employees, or 37% of the workforce, “to align its organization and costs with an expected reduction in loan originations.” The Kansas City, Mo.-based company said it “continues to meet all loan commitments, and its servicing and portfolio management organizations are not affected by the reduction.” The company said David Pazgan, chief executive of subsidiary NovaStar Mortgage Inc., would leave the company as part of the reduction.

Tags: housing bubble, stock market, credit, real estate, home buying, arm, interest only