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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: JBTFD who wrote (7268)	12/11/2002 6:19:32 PM
From: Wyätt Gwyön	Respond to of 306849

Two things could happen that would guarantee a bad outcome. 1. she cant make the payments and is forclosed upon 2. the value of her house goes down in a major way a HUD study found the default rate on mortgages with down payment grants is 19.39%, as compared to a nationwide default rate of 0.78%. whether she is that one in five who defaults cannot be determined in advance and is beside the point. however, a default rate some 25 times the national default rate may start to pose systemic risks. as mentioned in the article, one of the builders uses these grants for 38% of their Denver homes. moreover, there is plenty of evidence that these grants are simply increasing or propping up the prices in various local markets. so there is downside price risk as well. furthermore, if the builder is simply adding on 6% to the house price to cover a 6% grant, then the buyer is overpaying. in the larger scheme of things, we are at an all time high in terms of household debt to GDP (nearly 80%), as well as household debt to net worth, which has been increasing at its sharpest rate ever over the past couple years (and is now over 21%, as compared to less than 17% just five years ago). furthering consumer-led GDP growth is requiring ever-greater credit expansion to increasingly marginal borrowers. the systemic risks are real and profound. i don't think the old song and dance about the wonders of homeownership have anything to do with it.