Do you think the housing slump has hit bottom and things are picking up? The worse might be yet to come. It's sometimes hard to get a really good analysis from general newspaper or magazine stories. They usually have an agenda and they need to write what sells. I never put too much trust in the headlines.
A good friend and great financial advisor, Chris Morris of CMA, sent me a story that brings up some very interesting perspectives on several factors that could really add up to major trouble for both the housing market and the economy. It could get really scary. This article is one the most coherant pieces I have read on the topic.
3/1 ARMS were at their lowest levels and at their peak of popularity in the middle of 2004. That means that a huge amount of these loans are getting ready to adjust. They will be going from 4.25% to 6.75%. Some people will be able to refinance. Some will be able to handle the increased payments. Many will not. In areas with decreasing values it will be very tempting to just walk away and let the bank foreclose. More foreclosures mean more inventory. And the downward spiral continues.
Bank owned homes and new homes that are either complete or have been started are homes that have to be sold one way or another. They aren't homes that can be taken off the market where the owner can stay put for a few more years until things improve. The price declines that these homes will exert could snowball into a major downward spiral.
Atlanta is already a top city for the number of foreclosures. It is also a city where many interest only loans and ARMs were sold through HomeBanc. I think I remember at one point more than half of their sales came from these products. I've always felt comforted here because of the slow and steady appeciation that we've experienced but I sure do see a lot of new homes being built. Will job growth be enough to support all of this home growth? For the past few years buyers from the bubble markets were coming to Atlanta with more money than they knew what to do with. This really helped keep prices going up, especially in the $500,000 to $1,000,000 market. Many of those relocating buyers are now staying put because they can't sell their home. Will the foreclosures be the spark that begins putting pressure on these prices?
I hope all of these negative things can be countered by other factors. It is making me very nervous. But with everything problem there is always opportunity. I think it's time to start getting in the right position to take advantage of them if the worse case scenario does in fact occur.
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