Take a look at the data below and tell me if all of the sub-prime talk really makes sense. I suspect that savvy investors are seeing through the hype and are already taking positions to profit from this scare.
Submitted: Aug 29, 2007
Views: 2129
Comments: 8
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Fortune has an interesting chart that shows the percent of sub-prime mortgages on a state-by-state basis. What’s interesting about this is that the Northeast and California lead the pack, with large areas having more than 45% of their mortgages classified as sub-prime. These are also the states with the most expensive homes and where real-estate has remained somewhat stable.
Sure prices have dropped in California and Massachusetts but they haven’t cratered. The July report from the National Association of Realtors actually found that:
“Existing-home sales in the Northeast increased 1.0 percent to a level of 1.02 million in July, but are 2.9 percent lower than July 2006. The median existing-home price in the Northeast was $290,900, up 5.9 percent from a year ago.”
In California the picture was much the same:
“Regionally, existing-home sales in the West rose 1.8 percent in July to an annual pace of 1.12 million, but are 15.2 percent below a year ago. The median price in the West was $349,400, up 0.9 percent from July 2006.”
So, the areas of the country with the largest number of sub-prime loans have actually seen price and sale increases over the last year. Once again, I have to wonder if this situation is being accurately reported.
Some homeowners will default but the picture is not nearly as grim as you are reading. In fact, I pose a challenge, please post below in the comments box (anonymously if you like) if you are someone you know is close to defaulting on their mortgage. Let’s hear from the street what’s really happening.
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Comments Received:
jackman
(Unregistered)
pretty interesting. i don't personally know of anyone in trouble of losing their house but i doubt they would advertise this.
Posted: Aug 29, 2007
Sam Cass
(Unregistered)
Since I published this article I've had a further epiphany. This isn't really a mortgage crisis but a general credit crisis brought on by the overleveraging of hedge funds and investment banks. That, combined with the medias maniacal coverage have turned this into a real monster.
I don't mean to indicate that things won't get worse - they might. But I have a hard time believing, based on this data, that it will be because of sub-prime borrowers. I sense there are other factors at play. See my article on the Carry Trade, etc. for some insight into this.
Posted: Aug 29, 2007
Sam, the crisis is a leverage crisis, more than a housing crisis. Countrywide and the lenders levered themselves so highly that they risked huge losses in a housing market (or credit markets) that slipped a little. Now that the markets have in fact receded, they are calling for the Fed to bale them out. The Fed shouldn't do it, but should continue to fight inflation.
Posted: Aug 29, 2007
Mo.
(Unregistered)
You might wanna check the REO numbers for Countrywide, IndyMac and others which are multiplying every month. Also, huge inventory of the builders. Builders stopped building new homes which is a smart business decision and credit is getting tighter for them.
But aren't these indicators enough that this whole industry is going through crisis? This will spill over to the rest of the economy and no one knows how much at this time which actually is creating most of the panic. Fed cutting rates will also prove that it is a response to the panic rather than a policy move. I truely believe rate cut will not bail out anyone and the dollar will plummet.
Need a big correction in the RE market. Need to improve the lending standards.
I live in S. Florida and situation is not looking good. I have seen houses after houses listed again and again with major price reductions. It is simply over built. People paid 300k 400k for 3-4 bedrooms newly built townhouses. It was crazy. Most of these properties are empty for over a year now. Owners are so desperate that they are renting their units for $1200 a month just to generate something out of these others are trying to sell but no buyers. I have seen this first hand and that is why I disagree with anyone who says that it is not a crisis.
Posted: Aug 30, 2007
Dragon
(Unregistered)
I personally know of no one losing their home, currently. I was in Michigan in the Spring. The housing market is depressed , not due to Sub-prime, but because of bad management and stupid political decision IMHO. The recent so called crisis is because the ponzi scheme the money people have been running has run out ot steam. The suckers who buy their products are tapped out so they need a new venue to make money. It looks like the pension funds, and the main street investors, many who are retirees are the current prey. They will depress and manipulate the markets so they can buy low, sell high, while waiting for bail outs. These people know exactly what to expect, and what they are doing. They are profiting from the stock market for now until the consumer catches up. In the meantime, they will be buying the real estate forclosed on, at 75 cents on the dollar. Remember they have access to the REO offices of the Banks and will know which properties are prime. Any short fall will be made up by the tax payer just like during S&L crisis. In the meantime the rating agencies, loan packagers, mortgage originators, appraisers, real estate companies, title companies, mutual fund bond managers, and money banks will just lay low and put their money elsewhere while waiting until next time.
Posted: Sep 1, 2007
seandm
(Unregistered)
you need to come to Arizona then. i have two employees that have each had their homes foreclosed on. Both moved here from California as flippers thinking the market here was just taking off; when in fact they caught the tail-end and it took them down with. One employee actually had 2 homes auctioned off by the bank already and the one he currently resides in, will most likely be foreclosed on as well. Of course all 3 he bought with ARM's and all 3 were in speculative areas. Where i live (northeast of northeast scottsdale) there are tons of spec homes sitting empty with no takers for almost a year.
Posted: Sep 3, 2007
Dragon
(Unregistered)
Flippers aren't investors they're gamblers! Arizona has been one of the largest spec markets in the last few years. It was bound to slow down. Buyers from California always think other markets look cheap because of the high priced California market. They're the perfect victims for other markets. Investing in real estate requires sound principles just like any investing.
Posted: Sep 3, 2007
jimhcom
(Unregistered)
Anyone who thinks this is not a crisis is in denial. We are heading right into a financial storm the likes of which have not been seen for decades. Consider the following. The majority of rate increases on ARM's are still comming. 60% will increase (2 to 3 times their current rate) between 9/07 and 6/08. The housing market is already on its knees and we are just now starting to see unemployment begin to increase. it will get much worse, and as the employment numbers get worse the housing market will implode. We have been living in an borrow and spend economy based on 2%-3% interest rates, and over inflated property values, which is not, and never has been sustainable. Household debt is at its highest rate in history. Debt among financial institutions is staggering. Local and Federal goverments are drowning in debt. And now it has come time to pay the debts, and we are finding that too many can not make the payments. If the Fed attempts to lower interest, which in reality is starting the printing presses and printing more money without justification, inflation will increase and foreign goverments (who finance 65% of our national debt) will stop buying our debt causing the value of the dollar to free fall. Just like the drunken salior who wakes up hung over and broke, we have to face the fact the party is over. It was fun while it lasted, but the reality is we are not all rich, and we cannot afford our $500,000 Mc Mansions and our $40,000 SUV's.
Posted: Sep 9, 2007
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