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GenXer
Joined: 20 Feb 2009
Posts: 703
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 Posted: Wed Feb 25, 2009 11:20 am GMT Post subject: An email from a realtor |
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The following are quotes from an email written by a local realtor:
| Quote: | #1: What Impact Will "The Bailout" Have On Your Home Search?
This is a question I am fielding A LOT this week, as you can imagine. Please shoot me an email if you wish to dialogue- I am working hard to understand and process the complexities of the housing piece of it, as well as the overall impact the Bailout will have on things such as interest rates. This and MUCH MORE, below
#2: Is This Market Rebounding? I have a PDF I could send you (please ask) with headlines going back to the 70’s…it’s an eye opener. Bottom line: markets go up...markets go down..now is a great time to buy, and a better time to sell then it was a year ago. We are all anxious to see what practical effect the Bailout has on the economy- NO ONE KNOWS FOR SURE. One thing seems certain, though: interest rates must be going up. Even if housing prices remain flat, that means the home you want today may be out of reach in 6 months. Please check with your mortgage broker for possible scenarios. |
| Quote: | | I am a regular guy, passionate about real estate. I am a hard working advocate and advisor, without being a "salesman." Your goals, your price range, your time frame are my marching orders. |
And my reply:
Hello XXXX,
As an Investment Adviser, I have to sift through quite a lot of information. Yes, we do not know when things will rebound, but there is a very good correlation between the unemployment rate and the house prices. Right now unemployment is spiking out of control, and it will probably double within the next 6 months. Whether the rates go up or stay the same, there is a looming mountain of Alt-A and ARM resets, which are mostly higher end homes, peaking in 2011-12, but starting to pick upright now according to a Bloomberg report on defaults and delinquencies. Together with the unemployment figures, the only way for house prices to go is down, and it is only a question of how far down. There haven't been significant price decreases inside 128 and the people that are worst hit by the job losses are NOT factory workers - they are in the financial industry and engineering/science as well as in middle management, most of whom reside within 128. Also, there have been massive layoffs at law firms and at universities. Even without the job figures, several years ago a person working for a Federal bank had the figures on looming resets in the subprime loans. This came to pass, and the foreclosure figures are topping out for the subprime borrowers. It is the PRIME borrowers that are beginning to default right now. Even though Alt-A and ARMs are a small subset, all it takes is 5-10% of all high end loans to default to drag the banks into another crisis.
In fact, if interest rates do go up, you know what will happen? The ARMs will reset to a much higher interest rate! The Treasury index will rise, taking all of the ARMs out of reach for most borrowers! So you would like to HOPE that the interest rates stay put for the next couple of years, or we'll speed up the resets. Higher interest rate means higher foreclosure rate in the future. If you want to borrow from the past, in the last recession (peaked in 1992), the interest rate reached 12% at the peak, leading to the lowest house prices in places like Newton. Those who bought at that top have doubled their money. But as you correctly point out, we never know. There is one thing we know. For those who buy now and lose their jobs - they'll be in deep trouble.
However much I'd like for this recession to end, I see things getting worse for home buyers and sellers. As a fee-only fiduciary it is my legal obligation to provide my clients with factual advice based on sound analysis. History may not repeat itself, and in fact, I believe that it rarely does, and that every crisis has its own course, so we must not try to model this one based on the past. We may snap out of this recession tomorrow, but I wouldn't put my clients' money on it. |
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john p
Joined: 10 Mar 2006
Posts: 1820
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| Posted: Wed Feb 25, 2009 4:08 pm GMT Post subject: |
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| Quote: | | Even though Alt-A and ARMs are a small subset, all it takes is 5-10% of all high end loans to default to drag the banks into another crisis |
I've been looking everywhere for this data. Where did you find it? |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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GenXer
Joined: 20 Feb 2009
Posts: 703
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Wed Feb 25, 2009 5:08 pm GMT Post subject: |
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For ARM data all you have to look at is 1 or 3 year Treasury index...it is at the lowest point it has ever been:
http://mortgage-x.com/general/indexes/cmt.asp
ARM rate is tied to an index (in most cases, Treasury index), and will have to go up if interest rates go up, depending on what type of ARM one has. |
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JCK
Joined: 15 Feb 2007
Posts: 559
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| Posted: Wed Feb 25, 2009 5:25 pm GMT Post subject: |
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I think that only shows the "non-prime" data. The graph indicates that 17.7/1000 home have non-prime loans and 66% of those (about 12/1000) are ARMs.
I don't think it's giving you the number of prime ARMs (probably a much greater number), unless I'm missing the data somehow. |
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