It’s NOT over yet! In fact, it may have only just begun?
We have already seen the economic destruction wrought by the so-called sub-prime mortgage crisis, as foreclosures escalated in many parts of the country, contributing greatly to putting the credit market in a tailspin from which it has yet to recover and may not for some time to come.
So this is not exactly the best of times to be confronted by the very real possibility that–as they say in show biz–“you ain’t seen notin’ yet!”
A New York Times article this week begins with a paragraph that should make your skin crawl : “The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.”
That’ll take your eyes off your morning corn flakes for sure.
Even The Good Die (Default?) Young!
The article is talking about homeowners who have good credit ratings and how they are rapidly and in “growing numbers” starting to fall behind.
Says the paper as proof: “The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.”
The paper points out that a key reason for more defaults ahead will be that monthly payments are going up fast–while, at the same, time, the value of home prices keep dropping like a lox that slid off a deli counter in Queens.
Says Thomas Attenberry, president of First Pacific Advisors, “Subprime was the tip of the iceberg.”
Up, Up and Away!
Meantime, as they like to say in Dark Knight comics, the nation’s inflation rate has come alive with the energy of a dozen hungry pit bulls munching on a postman’s leg.
Consider this: “Consumer prices jumped at the sharpest rate in more than a quarter centuryduring June and consumers coping with soaring costs received their smallest income gain in a year,” reports Reuters, quoting a newly released government report.
Now that is one damn good question, ain’t it? Now what?
The other day, while driving through a well to do Los Angeles neighborhood, I lost count of the number of for sale signs on the front lawns of well taken care of homes. Not all are in foreclosure I am sure, but many no doubt are. And this is a “good” part of town.
My guess is, many of these signs will still be out there weeks and maybe even months from now since people can’t get credit to buy at a time when price bargains are surely to be had.
That housing “rescue” plan passed by Congress last week and signed into law by Bush is not likely to have any impact –if at all?–for many more months because it just takes time to get things of this sort rolling. In the meantime, the defaults and foreclosures keep mounting.
And out there, beyond the horizon remember, is that second, bigger wave silently approaching.