Wednesday, June 18, 2008
When will the housing market stabilize? One graph tells all....
There's 500 Billion dollars in Option ARM mortgages out there (peers from Portland, OR to Portland, ME.) These are mortgages that allow the holder, for awhile, to pay less than interest owed on the loan each month (That's the option). The deficit amount is added to the loan total. Of these Option ARM mortgages, apparently 80% of the holders are paying the least amount possible. At some point, they will be expected to actually make a real payment; this is called the reset, and often will double the mortgage payment required. When these loans reset, some huge percent of these mortgage holders will be unable to pay the higher amount; the houses will go on the market, or, most likely, into foreclosure, increasing supply and driving housing prices further down.
The default reset is 5 years after the mortgage was made. Assuming the height of the housing bubble was January 2005, then the resets should start fast and furious in about 2010.
The handy chart, above, shows when Option Arm loans will be resetting; as you can see, this is far from over.
Dr Housing Bubble Explains it All, Much Better Than Me. I borrowed his chart, thanks.