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

To: John Vosilla who wrote (29066)	4/3/2005 11:56:57 PM
From: GraceZ	Respond to of 306849

Plus I doubt they'll be making another home purchase for a long time. I know half a dozen people who walked away from houses, handing the keys over to the bank, during the Texas oil bust. I can say that it effected them for a remarkably short time (2-3 years), although RE in Texas remained subdued for a long time. Of the ones I know personally, all have houses and credit, some have owned several houses since. I would also guess that there is less of a majority with tons of equity in the bubble markets as there were in the 1989 top. Equity is remarkably consistent as a percentage of home values but the ability to service debt is far better at 5.5% than it was at the 10% it was in 1989. Pay down of principle in the first ten years at 5.5 is much higher because of the exponential curve on which interest accrues as interest rates rise. It's that low interest rate which has been feeding the liquidity in the mortgage markets, banks are getting principle back faster. At 10% the first ten years of a 30 year one only pays down 9% of the principle, at 5.5 you pay down 17% in the first ten years. The difference is even more pronounced in the first five years, 3% as opposed to 8%. The real question is what happens to rents over the next five years. I can't imagine that rents will continue to lag home prices as they have in the last five years.