I love that ARM reset chart! If you haven’t seen it before take a look.
Note the BIG chunk of green in months 40 thru 60 – if I am counting correctly, this corresponds to 2010 thru fall of 2011 – these are Option ARMs where the mortgage holder has the option of paying 1) a fully amortized payment, 2) interest only, or 3) minimum payment (which results in negative amortization)
Now, given what you know of the typical American consumer, which of these three options do you think has been exercised the most?
How upside-down will these mortgages be in 2010/2011?
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I am expecting the final bottom in this real estate cycle to be created in 2010 / 2011 when the Option ARMs blowup and those homes come onto the market as distressed inventory in a market that has already been declining for 5+ years – at that point there should be enough inventory available to satisfy demand for the next 3 to 5 years
Sentiment towards real estate will be very negative and it will probably seem like the market will never bottom out
The “bottom” that I am expecting will last for several years as the massive overhang of inventory is worked off
