So, How Bad is the Housing Bubble?
Tuesday, September 25, 2007
It seems that we can't go a day without hearing about the "Housing Bubble". Even if the media wasn't reporting it, the signs of a Housing Bubble are all there:
- Your neighbor's house has been on the market for months.
- The Nation is seeing record breaking foreclosure numbers.
- The Subprime Mortgage mess.
1. Foreclosures - More than half a million homes entered foreclosure from Jan - June 2007. That's 530,000 homes in 6 months. This represents the highest foreclosure rate in 50 years.
Source: Realty Times
Figure below shows U.S. foreclosures (in hundred thousands).
Source: Efinance Directory
2. Subprime Lending - If you told your grandma that you had a Subprime Mortgage, she would probably slap you in the face. Not because she thinks you're irresponsible with money, but because she's never heard of a 'Subprime Loan'. They didn't exist until the lat 1990's.
Quite simply, a Subprime loan is "a loan for those who do not qualify for the best market interest rates because of their poor credit history. In other words, a loan for somebody who probably cannot afford to pay it back. Sounds like a great deal.
Here's the data for Subprime Loans (% of all loans issued):
1990 - 0%
2000 - 8%
2007 - 25-30%
Ok, so 30% of all loans are held by borrowers who are 'at risk' and as you might expect, these borrowers are contributing to the delinquency rate.
Figure 21 shows Suprime loans (in thousands) that are delinquent.
Figure 19 shows the increase in Non-Prim mortgages.
Source: Harvard Joint Center for Housing Studies
3. Inventory - When housing was 'booming' and interest rates were at their lowest, builders were going crazy trying to fill the demand. Now we see many areas overbuilt and a lot of these new homes vacant.
Figure below shows the rise in unsold homes (new construction).
The trouble is, the price has not corrected to a level that is affordable to most buyers.
Source: Harvard Joint Center for Housing Studies
posted by author @ 7:51 AM,
