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There’s another problem facing the housing market this fall, one that a sharp-eyed reader reminded us of recently…
“Do you have a ‘we are here’ plot of the Alt-A/subprime, etc., [coming up soon]?” the reader asks. Ah, the famous Credit Suisse chart of adjustable-rate mortgage resets.
“I think Alt-A is going to spike in September-October, so it would be nice to see that one again in an updated form.”
Ask and ye shall receive. And the reader is right: We should hit a peak in resets next month…with an even-higher peak coming late next year.
The government’s mortgage modification programs have been a complete failure,” says Strategic Short Report’s Dan Amoss, assessing Uncle Sam’s attempts to prop up the market. “They have not addressed the problem of negative home equity.
“The level of home equity is the leading predictor of mortgage defaults and foreclosures,” Dan explains. “With housing prices set to weaken once again, we could see several months of self-feeding downward spiral: In an environment of weak housing demand, selling adds pressure to prices, which begets more selling… There’s still more room to the downside for prices to return to pre-housing bubble levels.
“In banking, they often say, ‘The first loss is the best loss.’ With a renewed downturn in housing prices, we could see a rush to liquidate the ‘real estate owned’ that’s been sitting on bank and GSE balance sheets waiting for a rebound.”
So the trickle of shadow inventory hitting the market now could soon become a flood.
Dave Gonigam
for The Daily Reckoning
dailyreckoning.com |
