BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
Earlier today, I was sent an article from the folks at Forbes that they thought our readers would be interested in.
The article is a great read and brought a new perspective to things for me.
talks about how a new trend in the industry, a mass of defaults in Alt-A loans, may continue the downward pressure on the markets right where the sub-prime loans left off.
That CSB chart lays it out quite clearly -- 2010 and 2011 will be disastrous - particularly in the case of option ARMs. Option ARM borrowers are overwhelmingly paying the minimum payment. So not only is their equity shrinking from the declining market but their loan balance is increasing due to negative amort. In 2010 and 2011 those loans will reset to a fully amortized payment amount. That represents a HUGE payment increase that most homeowners will not be able to afford.
swgprop is right on target. The bandits currently occupying the White House saw that the best way to make it appear that we have a functioning economy was to make borrowing as easy as possilbe.
Since the 70's our "economy" has consisted of running a national garage sale. We're just now seeing the tip of that day of reckoning iceberg.
(wow mixed metaphors or something).
Until we get back to making the things we use, and even exporting some of them, we're looking at a lowering of our standard of living until it equals out with the rest of the global economy.
Housing prices are way of of line given the wages of the average working Joe. Without manufacturing, the average Joe's wages will continue to shrink. Housing prices will continue to fall until Joe can afford a home, simple deal.
Even though common sense isn't taught in college, it's still part of the real world and still applies.
Lots of pretty smart guys and gals agree that until reasonable affordability (of single family homes) is restored, price corrections are in order in a given market. The most affordable markets are much more stable overall, with lower inventory and more brisk sales. The eventual impact of the Alt-A loan pool is conjecture now, but I'd agree that the potential for compounding the current mess is great.