Yup, that’s it. To job losses, add restaurant, retail, and anything else that has benefited from mortgage equity withdrawal. Cruises, travel, furniture (retail again)….
We haven’t even considered the personal dispair. Everytime someone is upside down at closing (I heard of someone yesterday in this position – they will owe money at closing), or gets a NOD, there is more human suffering. People owe taxes on the unpaid debt. They’ll need moving and downpayment money for the rental. At the same time, many will have lost jobs, and have no savings left. How will they manage this? I think we need to expect serious despair among our fellow Americans. I never wanted to write this before, because it’s too sad, but I think divorce, drinking, drug use (prescription?), and suicide will go up.
BTW, if interest rates rise to 10% as johnelco wrote on another thread, I wonder if house prices have to drop even more. With median household income of $65K, the median housepayment at 35% DTI (which is the ratio the banks will come back to soon enough), can only buy you a $250K house max. This would be the new median house price.
House prices are completely dependent on lender rules. Completely. It was only the loose lending that allowed stratospheric prices. Tight lending forces them down. This is a gradual process, which hasn’t started yet. My friend is selling a house to a couple with a low FICO, getting an 80/20 loan. The 20% portion is 10.5%. No money down, stated income. This disaster loan is still being made.
Now imagine these loans are no longer made. People need even 5% down, documented income. We go from 50% DTI to 30% DTI. This will force prices down, putting even more downward pressure.
All these things won’t happen in a big way until 2007 and 2008. This year is just the turning point. Housing is a slow moving ship. Do you think by 2007 and 2008 we will really pick up steam?
Next on the agenda: with the scenario you outlined, hipmatt, where do we go from here?
