First and foremost, the second major wave of mortgage payment reset is not over until the first quarter of 2012.
While the peak of the option ARM resets is at about mid-2011. Since option ARM holders can continue to choose to pay the minimum payment on their
mortgage until right before their reset, I assume that the flood of REOs (real estate owned by lenders) won’t be in the market until 6 to 9 months after the first missed payment. With the number of the homes potentially going thru foreclosures and downsizing of the banks, I won’t be surprised that the foreclosure process will take a whole year. Therefore, the housing supply situation will probably be very bad in mid-2012 (1 year from the peak resets in mid-2011) until first quarter of 2013. If you add 6 to 9 months on top to the mid-2012 for the time to sell a REO, there will NOT be any real recovery until 1st or 2nd quarter of 2013.
For the people who are looking to buy, the major bulk of the price declines should have happened by 3rd/4th quarter of 2012 or earlier. I believe that there is still a potential 15% to 20% downside from the current prices. If you’re looking forward to invest, there is just no reasons that you should put your money in a potentially sinking boat.
Interestingly, from Martin Armstrong’s economic confidence model, the credit cycle probably will bottom near July of 2011, which is consistent with the above timeframe. The above date probably will coincide with a bottom in the financial stocks (or the stock market for that matter) will certainly occur first probably with a minimum lead time of 9 to 12 months ahead of the actual housing bottom.
With an inflation rate that is probably going to be higher than normal going forward, a low Fed rate will not be helping much on the mortgage rate either. For those housing bulls who think that a low Fed rate will come to rescue, they don’t understand that an initial teaser rate at 1% (while the long term rate was still at 4.5% or above) will most likely NEVER come again. Since long term rates will most likely go higher due to heightened inflaiton, mortgage rates will be higher too. That certainly won’t help the housing prices.
