The subprime mortgage implosion was just the beginning.
Well qualified ARM borrowers will see their loans reset soon which will make the subprime borrowers’ default rates look like child’s play. Even though recent declining mortgage interest rates have helped ARM borrowers stay afloat, the current mortgage interest rates will not last forever and will only postponing the inevitable. The next spike in foreclosures will be ARM loans, the domino affect will take housing values with it.
But that’s not even half the picture.
Conventional mortgages will be next. The Wall Street Journal recently reported Deutche Bank’s prediction that by early 2011, more than 48% of US homeowners will owe more on their homes than the homes’ value.
Conventional borrowers are already foreclosing at record rates, especially those who borrowed at or near the housing bubble’s peak. As more homes with conventional loans are swept up in the value avalanche, borrowers who face decades of negative equity simply have no incentive to repay their loans. They face negative equity for the life of their loan,
Enter the retiring boomers!
That’s right. Baby boomers are retiring starting in 2010, the single largest age group of homeowners. One in four boomers own a second home.
Since a majority of retiring boomers see their homes as a significant portion of their retirement nest eggs, houses will come on the market in record numbers, the housing supply will outstrip demand and depress housing values. Once the sell off begins, it could dominate the housing market for decades.
The tiny bright spot in all of this is that the sell-off will be gradual, mainly because the baby boom generation stretches over almost two decades. And there is the possibility that there may be enough buyers to keep prices fairly flat, especially if population growth continues at current rates.
However “new housing starts” will be significantly affected. Demand for new homes will evaporate (except for maybe retirement communities) and the stock values for corporations whose primary market is home building are likely to remain low for the foreseeable future.
Unfortunately, low mortgage interest and liquid credit may not save the the housing slump. The old partners in finance , Supply and Demand, are the culprits.
Nowadays esp. with our economy our credit score is critical to our lives. People also want to be mindful of the things that drive blackballs on our reports. Something so simplistic as making a late payment or conferring with a credit consolidator.
Thanks for the Information, thanks for the fine Post. I will come back later. Also great place for real estate owners: sell your house quickly
not the most likely scenario… every month we are seeing new lists of communities across the country that have seen Unemployment DROP, and home values on the rise. Keep in mind that values are area specific, in that one area or school district in a given county could see increased demands, while another still suffers,,, this happens across the country, and that is why real estate is Location, location, location.