The Housing Wipeout: The Next Leg
We learned today that U.S. home prices posted their sharpest first-quarter
decline since the government began tracking the data 17 years ago.
The Washington-based Office of Federal Housing Enterprise Oversight said
Thursday that home prices fell 3.1 percent in the first quarter compared with
last year. The index also fell 1.7 percent from the fourth quarter of 2007 to
the first quarter of 2008, the largest quarterly price drop on
record.
One
of the more brilliant innovations in the mortgage industry in the last four
years -- the option ARM -- allowed homeowners to pick their payment each month
for a few years. As the borrower, you decide how much to pay each month… bare
minimum, interest only or -- gasp -- interest plus part of the principal.
Great while you get to choose. But when the option expires, the bank
resets your [budget] with a hefty fixed rate.
That second wave
of adjustable-mortgage resets won’t even begin until next year. And as
you can see from the chart above, the quantity dwarfs the
amount that caused Wall Street, the Fed and Congress to vomit in unison already
this year. [We thank Agora Financial for sharing this with us www.AgoraFinancial.com]
The Prime Mortgages can include the ARMs, and
there were many, many ARMS originated between 2002 and 2006 that are hanging on
the edge of the "reset precipice". Then in the next 3 years the many option ARMS
and "Alt-A" ARMs (Alt-A loans are the no document "liar loans" that were
originated by the millions during the housing and mortgage bubble). These resets
and expired, low interest rate Alt-A ARMs will peak in 2012...oh my God, 2012!
This indicates that we have at least 3 more
years of the mortgage meltdown and the housing wipeout to deal with and that is
not a promising indicator of the health of the US, British, and
Canadian economies in the the foreseeable future.
Agora Financial goes on to say, "
“The credit crisis will extend
well into 2009,” opines Oppenheimer analyst Meredith Whitney, “and
perhaps beyond.”
Whitney became somewhat of a contrarian demigod last year when she
brazenly forecast Citigroup’s massive write-downs before the crisis dominated
headlines.
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