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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: GraceZ who wrote (12)6/18/2001 12:01:13 AM
From: patron_anejo_por_favorRead Replies (2) of 306849
 
Grace, in the last 12 months there were approximately 19 million new residential units built:

census.gov

While that's a big increase y-t-y, it's not quite a record:

census.gov

Certainly there are a significant group of first time homeowners and people who recently "moved up" to a pricier home in 2000. There were also a lot of first-time equity shareholders in March 2000. Either way, the fact they are newbies will a) offer little to no protection when the are layed off from a job and can't meet their mortgage payments and b) provide little or no incentive for them to stay in their homes (rather than allow foreclosure) once they are "upside-down" when the market collapses. Many of the lending institutions in this field are dangerously to outrageously leveraged, with miniscule assets backing their outstanding loan book.

The fact remains that average home equity declined at the TOP of the economic cycle in Y2K, with an unemployment rate in the low 4% range. So what if a higher percentage of the mortgages taken out were new? I contend that the "new buyers" you cited that rushed into a peaking market are symptomatic of a market top being reached, quite analogous to the peak in margin lending seen at the top of the equity market (much of it taken out by new "investors").

Remember, in terms of the additional housing "supply" that is produced, a default is a default. Mr. Market "don't care loan age no more".

Regards

Patron
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