My Expectations for the Housing Market

Herewith a pair of charts that illustrate my continued pessimism. The first, from Agora Financial, shows the second wave of mortgage resets (thankfully not quite as big as the first wave) due to hit hard from mid 2010 through 2012. What this chart shows will be disastrous, but what it doesn't show is even worse. The situation on the street is deteriorating right now. As this chart shows, we're in presently a "reset lull" yet, counter to propaganda, foreclosures/serious delinquencies are actually up 55% this fall over last. Why?

No doubt some sub-prime foreclosures are still working their way through the snake, but this year's increase is largely due to two other factors. First is the millions of people who have lost their jobs and/or businesses and are now losing their homes. Second is that many option ARM borrowers are paying a minimum payment that won't even cover current interest. (That this is even an allowable practice says plenty...). The unpaid interest is then added to the principal balance each month, and the loans automatically reset to a much higher payment when the loan to "value" ratio reaches 125%(!). Hence, many of the option ARM's in the chart are resetting early - a major red flag. Many option ARM's were written for good credit borrowers on larger homes, so the dollar value represented is higher than one might think...

With that, here's the chart:



The second chart comes from the Glenn Beck show a few months back and shows inflation adjusted housing price history for the last 120 years. Various versions of this chart have been floating around on the web, all based on the highly credible Shiller data. The peaks and valleys in the market are fairly well explained and it's easy to see what's likely to occur in the near future. Here 'tis: