[Seaside]

CBS news 60min 12/14/2008

This video makes sense to me for what's comming next year or two.
They are talking about some daunting numbers.
See for yourself and get yourself prepared.

 

[Omega]

Very interesting, thanks for the link.

 

[AlanY]

This is old and mostly inaccurate now. The "second wave" is overblown for two reasons:

1. About a third of resetting mortgages are based on a fixed percentage over the Federal funds rate, which is 0-0.25% right now; most of the rest are based on a fixed percentage above LIBOR, which has been coming down as well (1 year LIBOR is 2.42% right now)... a year ago when LIBOR was at 4.49% this was a much bigger problem
2. It looks like the incoming administration is going to offer a blanket refinance package to every homeowner capped at 4.5%. Whether this is wise or not is up to you, but it caps the reset problem.

Don't get me wrong. There's plenty wrong with the economy, house prices will continue to fall, and there are no good outcomes from here (either deflationary forces will pick up steam or deflationary forces will be halted and there won't be time to mop up the excess liquidity before serious inflation sets in), but it's important to understand what's a real problem and what's not.

 

[Uncle Erik]

I don't think the rates and ARMs are the biggest problem facing the real estate market. Home values aren't at bottom yet and a better rate won't keep people from going upside down on their mortgages. Especially for those who took out equity to buy stuff or pay off bills. I think a lot of people will walk on their houses when they think they're overpaying. Add in the housing oversupply and I think the market will push prices lower than they should be.

Another real problem is going to set in at the state and local level. As prices fall, property tax assessments will certainly fall. State and local governments that got fat and happy from the bubble are going to have to cut back. I wouldn't be surprised to see the Fed bailing out governments, so they don't have to close schools, stop garbage collection or lay off firefighters.

 

[jellojoe]

Quote:

Originally Posted by Uncle Erik /img/forum/go_quote.gif ... I think a lot of people will walk on their houses when they think they're overpaying. Add in the housing oversupply and I think the market will push prices lower than they should be. ...

Wouldn't doing that ruin their credit?

 

[AlanY]

Quote:

Originally Posted by jellojoe /img/forum/go_quote.gif Wouldn't doing that ruin their credit?

Yes, but provided the loan is non-recourse (as most first mortgages are in most states), it only ruins their credit. Most people are willing to take this penalty in order to get out from an underwater house and save several hundred thousand dollars. It's called "jingle mail", and it's part of the reason there are so many foreclosures.

 

[Uncle Erik]

Quote:

Originally Posted by jellojoe /img/forum/go_quote.gif Wouldn't doing that ruin their credit?

It's a black mark but isn't the end of the world. I had family members walk on a condo they were under water on and they were able to buy a house.

Also, people who walk on a mortgage aren't necessarily bad credit risks and creditors know this. Their credit cards might jump the interest rate, but that's still profitable for the lender. Apartment managers will overlook it, too, since people need a place to live and usually pay rent.

 

[jellojoe]

Quote:

Originally Posted by Uncle Erik /img/forum/go_quote.gif It's a black mark but isn't the end of the world. I had family members walk on a condo they were under water on and they were able to buy a house. Also, people who walk on a mortgage aren't necessarily bad credit risks and creditors know this. Their credit cards might jump the interest rate, but that's still profitable for the lender. Apartment managers will overlook it, too, since people need a place to live and usually pay rent.

Ok. I'll keep that in mind.