Monday, July 09, 2007

Trouble Ahead?

The NY Times has an article on how the increasing rate of foreclosures in Atlanta is wreaking havoc with an already soft housing market in that area and may portend bad things for housing markets across the country:

ATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.

The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist with Beacon Economics in Los Angeles. As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.

A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.

While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year.


Atlanta also serves as a microcosm for some broader national trends: wages have been stagnant for much of this decade, homeowners have taken on record amounts of debt, and mortgage fraud has been on the rise.

“We are a very affordable place,” said Mike Alexander, the chief of research at the Atlanta Regional Commission, an organization that serves local governments. “But our incomes are very low, and if anything went wrong, it would be very hard for people to maintain their homes.”

Can anything head off the oncoming train wreck when all these ARM's reset?

Sure - lower interest rates. Then many people can redo their loans at lower rates and save their homes from foreclosure (not to mention their neighborhoods from decreasing home values.)

But central banks across the globe raising interest rates, not lowering them, and with a steady increase in real inflation in this country (i.e., not the bullshit core inflation rate but the inflation rate with the actual increased costs people are paying for food and energy in it), there seems little chance the Federal Reserve is going to cut rates any time soon.

So, I ask again, can anything head off the oncoming train wreck when all these ARM's reset?

Probably not. Bernanke will speak about inflation tomorrow: should be interesting.

Average hourly earnings are rising at a 3.9% according to the last NFP report.

Looks like the business cycle is getting quite mature.

Trading has consolidated over the last month or so. It is going to take a while, but the other shoe is waiting to drop.
Seems like it, pt.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?