S&P: Focus on Payments, Not Prices

The concept of a housing bubble is "fundamentally misguided," but an interest-rate-driven rise in mortgage payments may be somewhat of a concern, the chief economist at Standard & Poor's said May 6 at S&P's annual Structured Finance Seminar in Orlando, Fla.The economist, David Wyss, told attendees at the S&P seminar that market observers should be looking at the size of monthly mortgage payments rather than home prices when sizing up risks to the health of the residential market and the economy. He said these payments have been "at record lows relative to household income" and, among existing mortgage holders, are only at risk of rising for the one out of eight borrowers who have variable-rate loans. Mr. Wyss said he believes the residential real estate market "is not going to see a home price collapse" but may see "very slow gains" if interest rates rise. He said he expects to see interest rates rise early next year.