Crashes

[BuyerWillEPB]

Found the following quote today at Wall Street Journal Online.

I was amazed that this guy actually used this as an argument AGAINST a housing crash.

“Mark Zandi, chief economist of Moody’s Economy.com, expects prices will fall between 2% and 4% by the middle of next year, once sellers finally accept that the boom is over. Still, he doesn’t believe that a housing crash is imminent. “Corrections devolve into crashes when bankers dump properties,” he said. According to Mr. Zandi, that scenario is less likely to happen today than it was in the ’80s and ’90s, since most homeowners have a sizable amount of equity in their homes and are unlikely to default on their loans.”

Since, about 70% of loans in in San Diego the last few years were of the toxic ARM, interest only, negative amortization type, it seems a good bet that many Loanowners do not have sizable equity, and the banks will have plenty of fodder to devolve into a crash.

(Homeowners = Loanowners in reality)

Here’s the link:

http://online.wsj.com/article/SB116188461947704859.html?mod=googlenews_wsj

[MH]

Does anyone have accurate data on the amount (percentage) of mortgage debt outstanding? Certainly the 70% figure is troubling, but how many homes were in that bracket (of all available)? There are many folks like me, I think, who bought many years ago and are a long way from being upside down. If some of those refi’d (again, as I did) but didn’t take out any of the paper equity, then the resetting shouldn’t be much of a problem.

We have a lot of antecdotal evidence, but when I look at Zip’s website and bounce it off Zillow’s data – it seems that an awful lot of the homes for sale have a ton of space between what was last paid (and the tax assessment) and the asking price. Again, I know that some of those might have huge seconds or refi’s – but do we know that for sure?

I’m as bearish as the rest, but wonder if we’re projecting the foolish decisions of some against the entire population.

[BuyerWillEPB]

Here is one source for the approximate 70% ARM loans in San Diego.

“At the peak of the buying boom, he said, as many as 35 percent of borrowers nationally were signing up for ARMs. In San Diego the figure sometimes exceeded 70 percent, DataQuick has reported.”

Link:

http://www.signonsandiego.com/news/business/20061014-9999-1b14default.html

[powayseller]

We’ve got $9 trillion in outstanding residential mortgage debt, and $1 trillion of that amount resetting next year.

A lot of people have refinanced out their equity. The 70% figure includes refinancing. We’ve been on a refinancing spree in this country, and we’ve “liberated” $700 billion of debt from our homes in the last few years. Homeowners consolidate their auto, credit card, and HELOC debt by refinancing, and many long-time homeowners are now facing foreclosure.

The baby boomer retirement wave will be accompanied by downsizing, so I expect to see a demographic shift into smaller homes. Unfortunately, many will be disappointed that they have less equity than they thought, making for a less pleasant retirement.

[Anonymous]

MH, there's $9.8 trillion in mortgage debt as of Q2 '06 (Table L.2):  http://www.federalreserve.gov/releases/z1/current/z1r-4.pdf

That's set against $20.3 trillion in household real estate as of Q2 '06 (Table B.100):

http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

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