johnsocal

What happens if and when the housing market significantly slows down or in a worst case scenerio the housing market-bubble begins to burst?

GMAC home/car loans is the only portion of GM that been profitable since 2001 and if the economy enters a recession in 2006/07 can GM stand the burden of both a depressed auto and home market without filling for BK?

Massive_Chevy

The housing market will not burst in the near future-at least not as a result of increased home loan rates. The housing market flows with the economy (i.e. if the overall economy is healthy, so goes the housing market). Considering the fact that low interest rates generally drive refi's instead of new purchases, if the economy continues to hold and/or grow at it's current rate, then GMAC should be in good shape. In fact, low interest rates hurt residential lenders rather than help them, at least on 15, 20 and 30 yr. fixed products, because of the reinvestment risk associated with massive payoffs via refi's. Some argue that low fixed rate loan products drive new home purchases. However, one can obtain an identical rate with an adjustable rate product, so it's questionable the strength of the causal relationship b/w the two.

I did read an article today that stated that GMAC will prop up (or at least buffer) its projected losses for the rest of 2005. BK might be a good thing for GM if the plan is to reorganize and get out from under or at least demand severe concessions any adverse contracts (from creditors or labor unions alike). However, with a 23% market share, the possibility of BK seems remote. Absent an unforeseen event recession for '06/'07 is unlikely considering that it grew in 4.5% in 2004. GM's main problem is that it is a bloated, lumbering organization that can't seem to get out of its own way. Innovation is slow, sales are slack and expenses continue to rise - all the while competitors introduce bold new models, redesign existing models frequently and generally run circles around the General. It's too bad because as a Gen-X'er with a little bit of disposable cash (finally) there isn't much that GM produces that excites me right now (save the GTO).

johnsocal

Considering that the bottom of the last recession was October of 2002 I, think a recession in late 06 or early 07 is a very real possibility. It would take a while for our economy to retreate into two quarters of negative-growth (technical recession)since nothing happens overnight. While I don't think the housing market will impode during the next recession I do believe however that some regional areas are more at risk then others.

The housing market out here in California has been great and like most everyone of us who owns a house we have our home values soar over the last 5+ years. Since many of us have seen our homes double or even triple in value over the last 5 years out here in Califronia and I wouldn't be surprised to see home valuations correct 20-30% in 06/07. A 20-30% correction wouldnt do me much harm but it would hurt many of those who bought their first home in the last year or two. Since so many people depend on two incomes to pay their mortgage another recession with mass-layoffs could put alot people in financial trouble and put them in a position where they are unable to make their home and auto payment.

If a recession does indeed occur in 06/07 Im certain GM will have to file for BK.

SEAL20

It depends if GMAC holds on to the loans it makes....if it does, higher interest will actually benefit GMAC. If they make their profit on the secondary market (selling the loans they make for a cash profit) they'll be in a little touble. I'm sure they know what they're doing, they've been around a few years and made a few loans. They'll be just fine. If there's a 20%-30% "correction" to the houseing maket I think the economic massacre to Souther California, the nations #1 auto market, will have more of an effect on their auto business considering that A LOT of people will be out of work in homes that aren't worth what they paid for them will no longer be able to buy new cars.

That's just my 2 cents.