The housing slump: How deep is the pain? )

cnn ^ | 8-2-07

[Hydroshock]

NEW YORK (CNNMoney.com) -- The outlook for the housing market looks bleaker than ever. Foreclosures are skyrocketing. Home prices continue to fall. And forecasts for a recovery keep getting pushed back.

Meanwhile the collapse of the subprime lending market has spread to the financial markets, sparking fears that tighter credit will have a broader impact on consumers and the economy.

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The U.S. government has downplayed the risk of the subprime meltdown spreading. Treasury Secretary Henry Paulson has said the effects are largely contained, and the economy is still strong. William Poole, the president of the St. Louis Federal Reserve branch is also reserved.

"Unless the pressure becomes much more severe," he said on July 20, "the problems would not impact consumer spending or credit quality more generally."

In the financial markets, credit, including corporate bonds, has become harder to get, but Mark Zandi, chief economist of Moody's Economy.com, is loath to call it a "credit crunch." He does admit to a "liquidity squeeze," however. The difference: In a crunch, nobody can get a loan; in a squeeze, only the riskier borrowers are cut out

[Hydroshock]

Ping

[MondoQueen]

“Sub-prime” means loans to people with bad credit. This market has to have a correction every so often to weed out the ones who cannot keep up with payments.

[Roccus]

I want to thank you for the articles you post. I find the comments to them to be very entertaining.

[Hydroshock]

I fine the article frightening, but the comments entertaining.

[SkyPilot]

It has spread now to Alt-A mortgages.

Alt-As are a mortgage risk categorization; they fall between prime and sub-prime, but are much closer to prime. People with good credit ratings are now foreclosing.

News stories:

Mortgage worries hit alt-A market - Boston.com

Alt-A Rumblings - UBS warns on layered risk Alt-A from MortgageDaily.com

Alt-A: Newest Florida Mortgage Problem Area? - Florida Home Loan

Subprime mortgage problems may spread to 'Alt-A' loans - MarketWatch

Alt-A mortgage losses accelerate, threatening MBS, study says - MarketWatch

Alt-A Mortgage Market Showing Weakness: Financial News - Yahoo! Finance

The truth is, home prices went up too much, too fast, and people borrowed way, waaaaaaaay too much.

The Fed raised interest rates too many times because it feared a weak dollar.

Now, the dollar is weak anyway, and the housing market is in free fall.

[Ditter]

No one has told the Houston builders, new houses are going up everywhere, especially intown.

[RayStacy]

for later

[HereInTheHeartland]

““Sub-prime” means loans to people with bad credit.”

Not always.
Sub-prime can also mean people with 780 credit scores.
Maybe they are self employed or commissioned income recently. They could be making good money but can’t document a 2 year (the standard) track record.
Sub prime when done properly, gives people another option. Pay a higher rate for short time, then refinance into a a product with better terms.

The downside in all of this is that credit worthy people are not going to be able to get financing; it’s already happening.
Sub prime when done well and properly explained to a borrower is good thing.
Sub prime just got out of hand and too many unethical lenders got into it.

[silverleaf]

Unlike some of these so-called “financial reporters” my experience with the housing market goes back further than 5 years, I find it amusing that people cry “wolf!” over 30 year mortgages priced at 6.5%

[Moonman62]

“Sub-prime” means loans to people with bad credit. This market has to have a correction every so often to weed out the ones who cannot keep up with payments.

I would agree, if it were a natural market correction, and not one artificially created by the Federal Reserve.

Subprime also means higher interest rates, and those higher rates cover the natural rate of defaults. It's a system that works when left alone and offers opportunity to people who wouldn't otherwise have it.

[DB]

Or money simply depreciated substantially and pay checks didn’t keep up.

[DB]

Yes, my first 30 year mortgage in 1988 was just under 10% and that was an ARM...

[coloradan]

“There is no cause to worry. The high tide of prosperity will continue.” –- Andrew W. Mellon, Secretary of the Treasury. September 1929

“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board.” –- New York Times October 14, 1929

“The Government’s business is in sound condition.” –- Andrew W. Mellon, Secretary of the Treasury December 5, 1929

“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.” –- Associated Press dispatch. December 28, 1929

“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.” – News item. January 13, 1930

“Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction.” – News dispatch from Washington. January 21, 1930

“Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast.” – New York Herald Tribune.
January 24, 1930

“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.” – Washington Dispatch. March 8, 1930

“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.” – President Hoover May 1, 1930

“The worst is over without a doubt.” – James J. Davis, Secretary of Labor. June 29, 1930

“American labor may now look to the future with confidence.” – James J. Davis, Secretary of Labor. August 29, 1930

“We have hit bottom and are on the upswing.” – James J. Davis, Secretary of Labor. September 12, 1930

“Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment.” – Charles M. Schwab.
October 16, 1930

“President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President’s special committee on unemployment.” – Washington dispatch. October 20, 1930

“President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter.” – Washington Dispatch
October 21, 1930

“I see no reason why 1931 should not be an extremely good year.” – Alfred P. Sloan, Jr., General Motors Co. November 1930

“The country is not in good condition.” – Calvin Coolidge. January 20, 1931

“The depression has ended.” – Dr. Julius Klein, Assistant Secretary of Commerce. June 9, 1931

“Henry Ford has shut down his Detroit automobile factories almost completely. At least 75,000 men have been thrown out of work.” – The Nation. August 12, 1931

“Many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages.” Alan Greenspan, 2004

“The subprime situation is contained.” Ben Bernanke, 2007

[BillyBonebrake]

I sell building materials and I’m off 40% from where I was this time last year. My case might be extreme due to the fact that Connecticut is a saturated, mature market.

[Roccus]

I’m an old man with zero debt. I have all my ‘toys’ and I’m living in the house I’m gonna die in. I find it ALL entertaining. ;^)

[gunservative]

Home prices continue to fall.

Well, yes, in markets where the average closet condo is a million dollars or a 1000 sq ft home is going for $750,000, then you would sort of expect prices to fall eventually.

[NeoCaveman]

People with good credit ratings are now foreclosing.

A lot of people who bought houses with little to no money down and whose houses have lost a decent amount of value are finding that it's to their benefit to just stick the bank with the house. Especially people who got variable loans at a time when fixed rate loans were historically cheap.

[dangus]

>> Schiff expects huge losses in the housing market with home prices falling by half in some areas. <<

Please let it be Northern Virginia, Please let it be Northern Virginia, Please let it be Northern Virginia...

(I’m looking to buy RE in NoVa in about 2-4 years.)

[dakine]

Make $$$ while others cry...