The tiers of the market depend on each other. The middle end softened one year after the low end, because the low end seller couldn’t find a buyer for his home. And so the ripple effect moves up…. In the last downturn, all prices and loctions went down.
What is a middle end buyer? My lab tech who put down $150K on his $650K home in Carmel Valley, whic is worth $1.3 mil today? He has a 5 year I/O loan. When it resets, poof!
What about the millions of Americans, owning their homes since the 1980’s, who cashed out their equity and have none left? Now they are in foreclosure, since the interest payment have gone up so much they can’t make the payments. I found 3 old-timers in very good Poway neighborhoods, purchased in the 1980’s, starting equity refinancings in early 2000’s, and are now in foreclosure.
Don’t forget that many many people took the equity out of their homes. Not only is the equity gone, but they have rising debt payments on those adjusting loans.
Add in the slowing business at builders, lenders, retailers, and you can in foreclosure even with a fixed rate mortgage.
People will hold on as long as possible, and that’s why Ryan Ratcliff calls foreclosures a lagging indicator. He correctly said, “People will eat macaroni and cheese before they’ll stop making their house payment”. But with so many people living on the edge already, with so many adjusting mortgages and overextended credit, time is against them. Ultimately, if you can’t make your payment, you are going to lose your house.
Read the Roubini blog. Yesterday, he disputed the 8 common myths given by housing and economy bulls. Good stuff.
