What can we make out of the latest housing and mortgage market news and analyses? What are the risks of a hard landing of the economy? Here is is a list of recent news and their implications for housing, mortgages and the economy.
Over 22 subprime lenders closing shop in the last two months; subprime meltdown and carnage getting worse by the day
Other subprime lenders losing money and/or being on the selling block
Default and foreclosure rates soaring in mortgages. 20% of subprime mortgages expected to end in foreclosure
Cost of insuring against subprime defaults - ABX BBB- index - soaring: 1000bps above LIBOR
Homebuilders having massive losses, lower revenues and sales. Their stock prices beaten down again
Vacancy rates in housing at unprecedented highs; overhang of unsold new and old homes is massive
Housing starts plunging 14% last month; building permits falling further
Home completions starting to fall as they lag starts by 6-9 months
Job losses in housing increasing as completions and starts head south. 600k job losses in housing alone expected in 2007
Various indeces of home prices showing sharp slowdown or outright fall
There is already a serious credit crunch in subprime market
Risk of spillover and credit crunch to other "monster" prime mortgages and other non-prime mortgages as subprime poor practices (low/no downpayment, interest rate only mortgages, no documentation, negative ammortization, etc.) were also widespread among prime mortgages and ARMs
$1 trillion of ARMs (mostly prime) coming to maturity in 2007 alone. Reset rates on these ARMs expected to increase debt servicing costs for saving less and debt-burdened households
Housing wealth falling given falling home prices
Credit crunch expected to reduce mortgage demand and home demand and reduce further home sales, thus leading to further downward home price action
Home equity withdrawal (HEW) already sharply down
Lower housing wealth and HEW expected to slow down private consumption of saving less and debt-burdened households.
Consumer confidence down, retail sales flat in January, oil close to $60 and initial claims significantly higher add to consumer woes.
A few mainstream analysts starting to worry about the subprime credit crunch spilling over to prime mortgages, consumer credit and risking to cause a hard landing of the economy, if not an outright recession.
Housing recession, auto recession, manufacturing recession, real investment recession already present in the US economy. Risk that the consumer will falter next taking the whole economy into a hard landing
Risk of vicious cycle where the credit crunch weakens the real economy and the weaker real economy makes banking problems and the credit crunch worse.