From John Burns at Inman News: "Subprime is a Leading Indicator for Prime… The real reason for the stress in subprime has to
do with flat home prices and rising adjustable interest rates, which
are impacting all home buyers who have bought in the last 24 months.
The stress is currently most obvious in subprime because those loans
tend to reset after two years, versus three-plus years for other loans,
and those borrowers are more likely to default. The primary housing
market will have significantly more stress 12 months from now than it
has today unless mortgage rates fall dramatically or home-price
appreciation returns. Why? Because an adjustable-rate loan made in
early 2005 will result in a 30 percent-plus increase in the borrower’s
mortgage payment, and the value of their home may have declined since
they bought the home."
Maybe these are a few reasons why the CEO of DR Horton isn’t so keen on 2007…
Homeowners Stuck as Lenders Cinch Standards
The Mortgage Lender Implode-O-Meter
Option One Eliminates 100% Mortgages
ResMae Sells for Pennies on the Dollar
Execs Dump Stock at Countrywide
Subprime Woes: How Far? How Wide?
Market Turmoil Diminishes Domestic Bank
Countrywide Foreclosure Tracker
Lawsuits Target Mortgage Schemes
BanteringBear
While “The Meltdown Continues” is an appropriate way to describe the subprime situation, we haven’t even experienced the meltdown in housing prices which is on the horizon due to the well of easy money drying up. Things are just getting started. If sellers think it has been tough to find a buyer lately, they haven’t seen anything yet. Countrywide, one of, if not the largest of the subprime players, just said no more zero down loans. Their new requirement of a paltry sounding 5% down is not doable for a large percentage of buyers, hence the zero down “affordability products” in the first place. A stake has just been driven through the heart of the market. My mortgage broker was telling me last week, that many deals are not being funded come closing. Buyers and sellers mistakenly believed that being pre-approved would guarantee closing. Nope. I am now seeing houses coming back on the market which had appeared, at one time, to be sold. Add these into the ever growing resale, foreclosure, and new home inventories, and you’ve got a supply nightmare on the horizon. And, an oversupply means lower prices. Lower prices mean fewer refis, more “have to sell” houses coming on the market, even more foreclosures, and this thing feeds on itself all the way to the bottom, wherever that is. It’s curtains. The unfortunate thing, is that the greedy lenders waited until the bitter end to shut off the tap. Had they done so 2-3 years ago, the market would be much healthier today. Now, years of pain are on the horizon.
Countrywide Foreclosures
Great Article by John Burns. I’m a little confused on one part though…
“The primary housing market will have significantly more stress 12 months from now than it has today unless mortgage rates fall dramatically or home-price appreciation returns.”
I would think that for home-price appreciation to return there is the prerequisite that mortgage rates would have to fall ‘dramatically’? Secondly, if mortgage rates (adjustable-rate) due fall back down again, wouldn’t this just end up putting fuel back in the fire?
If the FED is serious about going after the housing bubble, as they say, then it would seem that a welcomed housing correction could not allow for low rates unless the country is in an official recession.
-Dimitris