All together now: Gimme a "C." Gimme an "R." Gimme an "A." Gimme an "S." Gimme an "H!" Wadaya got, "CRASH!" As in stock market.

No, I'm not out of my mind leading a cheer for a stock market crash? Not when you consider the alternative could be - mortgage rates of 10.5 percent or perhaps even higher.

At least that's what economist Joel Prakken sees on the horizon if the market doesn't come to its senses. "We ought to be rooting for a crash," he says. "Without it, rates would be a heck of a lot higher than they are right now."

Prakken, whose firm, Macroeconomic Advisors, is widely considered to be one of the most accurate forecasters in the country, admits "there's no question" the wealth that has been created as a result of the burgeoning equities market has been a boon to housing.

But if a correction doesn't occur soon, he warns, the result will be higher loan rates. And that will serve to hurt housing more than the stock market has helped.

Actually, the stock market has helped boost housing in two ways, says Prakken, whose firm changed its name from Laurence H. Meyer & Associates when its namesake assumed a position of the board of governors at the Federal Reserve Board in 1996. It has helped drive the ownership rate to its highest level in history, and it has enabled many people to buy more expensive houses than they might ordinarily purchase.

"Since 1995," he says, "starts have been growing faster than the increase in the number of households, and the stock market has payed a key role in that. And there's been a noticeable increase in more expensive houses since the market exploded, too."

But if the market continues unabated, the Fed will continue to tighten the screws on interest rates, the economist cautions, and that could have an even greater impact on production. Housing, he says, "just tanks even further."

By Prakken's reckoning, mortgage rates in the 10-11 percent would cause housing starts to plummet by some 125,000 units. But if the stock market was to get itself under control and the Fed decided further tightening was unnecessary, he says starts would fall by just 50,000 units.

Fortunately, the economist is predicting that the latter scenario will come to pass. Indeed, he sees "an immaculate," 13 percent stock correction by the end of the year. "It just comes," he says, "as investors realize that analysts' projection of earnings are overstated and that the market can't grow three times as fast as the economy forever."

Meanwhile, Joseph Hu, managing director of structured financial rations at Standard & Poor's, thinks the Fed might be missing the potential impact higher mortgage rates might have beyond the housing sector?

"A lot of non-housing related activities are financed" though the mortgage market, Hu says. "What I'm afraid of, and what the Fed may be overlooking, is that by slowing housing, it will also slow home equity financing, and that could have a more severe impact on the economy than the Fed intends."

According to a 1998 Fed survey of consumer finances, 68 percent of all home owners have some mortgage debt, 20 percent greater than ever. And there's much more to come, according to Hu. "There's a huge amount of home equity debt still to be tapped. Not everybody is going to extract it, but the number of is big perhaps as much a $5.3 trillion."

Major expenses financed by home equity loans include home improvements, 43 percent; debt consolidation, 21 percent; investments, 8 percent; education, 6 percent, and the purchase a vehicle, 5 percent.

The economist pointed out that the two major financing trends of last five years -- rapid expansion of subprime lending and increased origination of second mortgages, which, even though lenders might not admit it, also are subprime loans are both directly related to home equity financing.

The term "housing finance" isn't what it used to be, he says. Prior to 1995, the emphasis was on finance as the industry worked to find ways to put people into houses. Since then, though, the emphasis has been on housing, and using the equity people have built up in their houses to finance consumption expenditures.

Published: May 3, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.