Housing market in for a rough patch
By Melissa Wirkus
Just when we thought the housing market was slowly
correcting itself, we get more news telling homeowners
the contrary.
Now, it looks as if things may get a lot worse for the
housing market before they get any better.
In addition to the surplus
of homes on the market, and declining prices, we are
also seeing an increase in the amount of foreclosures
and mortgage delinquencies. This means that people are
finding it harder to keep up with their mortgage payments;
which could be a result of all of the adjustable-rate
mortgage resets.
When all of these elements combine, we see the housing
market slow more than ever, which is not good news for
any one, especially those looking to sell or who are
having a hard time with their mortgage.
An October 23, 2006 article by Darrell Hassler and Hamish
Risk of Bloomberg, “Housing slump in U.S. poised
to worsen, derivatives trade shows,” discusses
the various elements that are leading experts to believe
that we have not yet seen the worst of the housing slowdown.
“The slumping U.S. housing market is about to
get a lot worse, according to traders of mortgage-backed
securities and the so-called derivatives on which they
are based.”
“The ABX index, which measures the risk of owning
bonds backed by home-loans
to people with poor credit, rose 30 percent since Aug.
9 to the highest since January. There are more than
$500 billion of such notes outstanding.”
What this all translates to is that the rise in the
index means that we should expect more mortgage delinquencies
and foreclosures to transpire. This all occurs at a
time when the number of homes for sale on the market
is at a 13-year high, according to the National Association
of Realtors.
“The percentage of home-loan payments more than
60 days delinquent rose to 7.23 percent in July from
5.9 percent a year earlier, the fastest rate of increase
since 1998, Moody's Investors Service said Oct. 17.”
Investors who have been concerned about a slowing housing
market for the past year or so are now using the rising
index to confirm what they thought; deterring them to
invest in the real
estate market at all.
“‘The unequivocally bad housing data we've
seen’ is prompting investors to seek to profit
from potential declines in mortgage-backed securities,
said Greg Lippmann, the head of asset-backed trading
at Deutsche Bank AG in New York who helped create the
ABX indexes in January.”
During the housing boom, a variety of different mortgage
products were developed to get people in to houses they
probably wouldn’t have been able to afford with
a traditional mortgage
product.
“More borrowers are finding it harder to meet
interest payments following 17 interest-rate increases
by the Federal Reserve since mid-2004. The default rate
for subprime loans rose to 7.35 percent in July from
5.51 percent a year earlier, according to investment
bank Friedman Billings Ramsey Group Inc. in Arlington
Virginia.”
“‘People have a little more visibility on
the slowdown than they did two or three months ago,’
said Andrew Chow, who manages $5.5 billion of asset-backed
securities and credit-default swaps at Seneca Capital
Management in San Francisco.”
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