Looking for a bottom to the housing market? (and no, it's not in 2008 or 2009)

[El Pinko]

Look no further.

[mdmc]

1. 2014

looks pretty grim

[KoKo]

2. interesting....and grim...K&R...

[brystheguy]

3. Call me dumb . .

but what are we looking at here? In layman's terms, please.

[BrotherBuzz]

7. I'm with dumb

:shrug:

[demobabe]

8. Basically

We've been watching the Subprime loans go south. Those are the light green lines, so that is going to continue to be bad for a while although the worst there is through 2009.

The frightening thing is those light yellow lines - those are ARMs (Adjustable Rate Mortgages). You know those loans they advertise where you only pay 1.95% interest rate, and that's for interest only, and no pricipal paid? Those.

What the reset means is the date when the initial low interest rate period is up. At that point, you have to refinance or start paying a much higher rate - double your current payment, or more. With all those ARMs, this looks very brutal, indeed.

[AP]

11. These are all ARMS

The light yellow lines are "option ARMs" -- the ones where the borrower can decide how much to pay each month (you can pay an amount that includes principal, you can pay interest only, or you can pay less than the interest, and the unpaid interest gets converted into principal, upon which you pay interest -- so these can really snowball into incredibly expensive loans).

With option ARMS, the interest rate actually changes monthly, and the minimum payment changes annually up to a maximum of a low fixed percent (eg 7.5%), and again at some other longer term (eg, every 5th or 10th year) so that either the loan becomes fully amortized over its life ("recast") or so that it's only 110-125% of it's original balance ("negative amortization cap"). When the recast or the negative amortization cap happens, the payment can shoot up, and that must be what this chart is measuring.

[brystheguy]

13. Thanks for the clarification.

So, if you were looking to buy a house then 2011 looks to be the time since all of those loans will be resetting and possibly forcing people out of their homes because they can't afford the payments. 2014 would not be a good time because there would be very few distressed sellers in the marketplace.

Are people with the crazy ARM's not getting the message and converting those in to fixed rate loans? Boggles my mind if they are not.

[El Pinko]

14. I think those who can are trying to do so.

But the problem is that mountains of bad debt has forced lenders to tighten up their lending policies to the nth degree, and even redlining huge areas of the country where post-bubble depreciation has left recent homebuyers underwater (house worth less than the mortgage balance). Sadly, refinancing is not an option for an awful lot of these people.

[DemocratInSoCal]

4. They Say It's Going To Be The 2nd Half Of THIS Year

It's ALWAYS 6-12 months in the future, from whatever point in time we're at.

By June, it will become early 2009. By year's end, it will be late 2009. And so on, and so on.

They want to run the clock out on 2008 before it completely collapses.

[nadinbrzezinski]

5. hmmm why am I having flashbacks to my studies of the 1929 crash?

Oh never mind.... nothing to see here

[bbgrunt]

6. These are, indeed, "interesting times". To stave

off deflation and total collapse, they are insanely inflating everything which only postpones the eventual collapse and makes it much worse.

[FlyingSquirrel]

9. That's about what I figured...

2012 would probably be an ok year to buy a house for me. Or I might put it off even further. I've been renting the same house for 3 years, the landlady hasn't raised the rent at all. So I might just chill out here till something changes (she's pretty old, so I'm not sure what she might be planning to do. If she wanted to sell, that'd be a tough choice for me 'cause I like it here but don't want to overpay for a house.)

[AP]

10. Why is there a steep drop-off?

Is this a projection, or is it a measure of actual, contracted mortgages as of today?

For example, if first resets usually happen in the third (through 8th?) year, then, presuming that sort of mortgage continues to be sold, you'll see the drop off move forward as time progresses. That would be the case if this graph only counts actual, contracted mortgages.

Or is this a projection based on the likelihood that the number of all mortgages will drop, or that adjustable rate mortgages are going to be sold much less frequently in the future?

[El Pinko]

12. The number of subprime loans being made is almost zero now...

...the funding for such loans has dried up and many of the lenders gone under, so those are no longer a factor.

There are still ARMs and Option-ARMs but because of much tighter lending and down-payment requirements now, there are a lot less of them being made as well, as I understand it.

I think the graph is based on actual, contracted mortgages in existence today.

It may be that in 2 years there will be a new wave of Liar loan ARMS out there to reset, but I doubt it.

[NewJeffCT]

15. well, if Obama or Clinton can upset McCain to win...

I would expect both of them to sign into law some tough laws against certain types of mortgages - subprimes. And, if we do pull off the miracle and defeat McCain, I would expect both of them to actually enforce the other financial laws that are on the books as well.