Titled, "Pick-a-Pay Loans: Worse Than Subprime" the article begins:
For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the U.S.
Option ARMs were typically issued to creditworthy homeowners and allow borrowers to make a range of monthly payments. The payment options include a partial-interest payment that adds the unpaid interest to the loan's balance. On many such loans, balances have risen while values of the underlying properties have plummeted amid the housing crisis.
As of April, 36.9% of Pick-A-Pay loans were at least 60 days past due, while 19% were in foreclosure, according to data from First American CoreLogic, a unit of Santa Ana, Calif.-based First American Corp. In contrast, 33.9% of subprime loans were delinquent, with 14.5% of those loans in foreclosure, the figures show.
My note: This is the hurricane flag flapping straight out while the flagpole begins to bend in Category 1 winds. As this turns into a Cat 2, Cat 3 and finally a Cat 5 storm, real estate will be down another 40 to 50% from here in my opinion, and not the 5-15% which Case/Shiller believe is in store.
I've been making this point for months now that resetting Option Armageddon loans (ARMs) will begin their biggest flush sometime in the 2011-2013 time frame.
That many prime and Jumbo borrowers using these "Pick A Pay" loans are already tossing in the keys (36.9% of these loans are at least 2 months in arrears on payment while 19% are in foreclosure!) means with the worst to come, we are no where near a bottom in housing prices.
Anyone buying the NAR's same ole same ole, "There's never been a better time to buy Real Estate," isn't paying attention here.
You don't go through a Black Swan Housing Bubble Crash in just two years time when it took 10 years to blow. ( I recently read a piece on an Econmic blog which argues the bubble really began under Ronald Reagan).
We are at 2003 prices in most of the Excel spreadsheet averages I've put together. By this I mean over 90% of all homes for sale today and bought in Key West in 2004 are now listing for prices less than what they were purchased in 2004. So, we've adjusted the average pricing timeline back to 2003 as of this week.
We've got a long way to go to get back to 1996 prices, but I feel certain we'll see them again in the Florida Keys. It might take us another 4 or 5 years, but this is what happens in Bubbles: they blow big, and then they deflate. It took ten years to blow. We've only let 2 years of insane pricing out of the bubble. There's more to go.
2 comments:
Rock, I've been saying that prices will fall another 50% from current levels for months now. All my friends think I'm nuts and I WAS beginning to believe maybe I was wrong. Stumbled across your blog a few weeks ago. I'm back on the train again. We are going to get hit by a tsunami that no one is expecting. The "Survivor's Club" says that those who survive and thrive are the ones that are mentally prepared for the worst case....I'm ready, how many else are? I'm afraid too few.
Using different methods, Mish is in agreement with us that Housing will fall much further.
He also shows a chart (which he printed after this post of mine) which shows we are back to 2003 levels in pricing.
My Excel spreadsheet for Key West, Lower Keys and Middle Keys prices shows over 90% of 2004 bought homes now on market are lower than their 2004 market purchase price.
As I said in this post (and Mish is saying too) we're only back to 2003 prices at this moment. (I would say it's 50% of houses bought in Key West during 2003 are now on the market for less than what they were bought 6 years ago).
It's the high end market which is going to have the biggest losses going forward. More and more million dollar homes are reducing their asking price.
We've got million dollar condos breaking down in their pricing (see Harbor Place in Truman Annex or Sunset Cove).
These next few years are going to be very interesting.
Lastly, Mish thinks we are in for a bottoming in 2011 to 2013 and then we'll go sideways for 10 or more years. He and I are looking over different data and coming to the same conclusions (he focuses on credit deflation via Fed Stats, I focus on Housing loans)and we are coming to the same conclusions.
http://globaleconomicanalysis.blogspot.com/2009/07/housing-update-how-far-to-bottom.html
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