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

To: patron_anejo_por_favor who wrote (110929)	3/17/2008 11:22:02 AM
From: Jim McMannis	Read Replies (1) \| Respond to of 306849

Page 17 seems to differ in regards to other charts of option ARMs resetting in 2011? Humm.

To: patron_anejo_por_favor who wrote (110929)	3/17/2008 1:29:54 PM
From: Hawkmoon	Read Replies (2) \| Respond to of 306849

First of all, a large chunk of mortgage payments aren't being made. That's why all of this got started. I hear ya.. ok.. But there is a GREATER majority of mortgage payments that ARE being made, particularly in the AAA markets where most people have good jobs, independent wealth/assets.. etc.. And it's likely that they will continue to be made so long as the homeowner has an expectation that he'll achieve some equity in that home over the course of 30 years. After all, that's why people buy over rent, isn't it? Because they don't want to throw their money into some landlord's pockets, and they get a nifty tax deduction to boot. And revisiting the link you posted, we're about 100% above the historical mean average, which suggests the home price of a 200K home needs to settle out at about 120-150K (according to previous fluctuations in that chart). At which point we can presume that homeowners will perceive their expectations of achieving home equity over 30 years as a viable possibility. And it certainly wouldn't hurt if rates declined sufficiently that they could manage the mortgage payments they originally agreed to. And let's face some additional facts here.. I think we've seen the end of proliferation of MBS's and CMO's, and we're unlikely to continue seeing sub-prime or Alt-A loans being offered. There is just no market for them anymore.. So RE market prices and interest rates need to readjust to a level where home owners are incentivized to remain in their homes rather than turning in the keys and walking away. And it's far preferable for the banks to just write off a portion of that loan, give a portion of that write to the homeowner as equity, and keep them in that home making the mortgage payments. The alternative is for the owner to mail in the keys, walk away, and then find a place where they can rent for a comparable price to their previous mortgage. They won't have much of a choice.. because when they walk away, they essentially become "sub-prime" due to the hit on their credit scores. And I'm not ignoring the effects of leverage. For god's sake, it's this unwinding of these highly leveraged position on previously presumed safe, non-volatile assets that has destroyed the market for them. No one wants to buy something they know the current owner is being forced to liquidate in a fire sale. But eventually someone's going to buy them, because of the intrinsic value of the property that collateralizes them.. If I can buy 10 million dollar MBS, collaterized by 10 one million homes for .05-.10/dollar, I suddenly have 10 very nice homes to foreclose on.. (or turn their current owners into renters).. Hawk