Housing Bubble Threatens Global Economic Growth, Bootle Says
Oct. 13 (Bloomberg) -- Surging investment in real estate over the past decade has led to a bubble that threatens to send the world economy into recession, economist Roger Bootle said.
House prices and the economy enjoy a ``symbiotic relationship,'' Bootle, economic adviser to accountants Deloitte & Touche LLP and a former adviser to the U.K. Treasury, said in a revised edition of his book, ``Money for Nothing.'' As the housing boom ends, consumers will feel poorer and pare spending, driving up unemployment, he said.
``Like the earlier bubble in shares, the extent of overvaluation is different in different countries, but this is a global phenomenon,'' he wrote. ``In the end, this bubble may be more serious than the primary bubble in shares. When it bursts, the world will tremble.''
http://www.bloomberg.com/apps/news?pid=10000102&sid=a1FU1hlz5WQo&refer=uk
Risky 'Exotic' Loans Fostering a Refi Cycle
Many borrowers are trading in interest-only mortgages to forestall higher payments.
By Annette Haddad, LA Times Staff Writer
http://www.latimes.com/business/la-fi-refi10oct10,1,4295433.story?coll=la-headlines-business
Craig Wolynez is the kind of homeowner stoking fears about a housing bubble.
Even though he had no steady income, the 33-year-old computer consultant and his wife were able to purchase a $416,000 house in the San Fernando Valley two years ago using an "interest-only" mortgage that guarantees low monthly payments for the first five years. After that, Wolynez's payments could rise sharply — making him a prime candidate for default or, even worse, foreclosure.
But like many financially stretched home buyers, Wolynez has a way out: He plans to refinance before his payments balloon. He's now shopping for a new interest-only mortgage that will keep his payments manageable longer.
"There's an urgency," he said. "We know we have to refinance."
Countless home buyers like the Wolynezes sign up for risky mortgages knowing full well they plan to refinance them — or sell their homes — before the payments go up.
The mortgage industry not only grasps this refinancing game, it aggressively markets new loans to these borrowers, raking in additional profits from fees and other charges. And lenders continue to devise more creative loans that reduce payments further and extend purchasing power in pricey markets such as California.
"Lenders are putting people into loans where they are almost guaranteed to be refinanced," said George Yacik, vice president of SMR Research Corp., a Hackettstown, N.J.-based financial research firm.
For many recent home buyers, it's become a nerve-racking fact of life knowing that their term for paying a reasonable monthly payment will be short-lived — unless they change loans.
Brian Kite of West Los Angeles suffers from what he calls "interest-only angst." The 36-year-old local theater director figures if he doesn't sell his house in the next few years, he will have to refinance his mortgage, which exceeds $360,000, regardless of going interest rates. If he doesn't, the mandated principal and interest payments could become too onerous.
"Hopefully, rates won't move that fast," he said.