I thought you were saying that house prices were not falling much. That is true in some areas and in others we have seen large drops of 5-10% and even higher in some cases. Let's not over look the removal of many loan programs which allowed folks to buy when they would not have been able to under traditional loan programs. What I mean by that are interest only loans and negative amortization loans which I mentioned before. I recall that close to 40%+ of loans in CA made in the last 3 years were either interest only or neg am loans.
Positives for housing prices going forwsrd:
New Home building is slowing down.
Negatives for housing prices.
Arms resetting to higher rates and thusly payments will push some into default.
Many Subprime and Alt A borrowers will not be able to refi with the tighter guidelines and removal of many high loan to value programs which will lead to some more borrowers defaulting.
Subprime and Alt A borrowers that can refinance will in most cases be refinancing out of their adjusting ARM into a higher rate than the initial fixed rate of their original arm loan. Or, they will be refinancing into a fixed rate which will also be higher than the initial fixed of their original arm loan. This may cause some more borrowers to eventually default. It will definitely cause them to spend less on other items.
Even A paper folks looking to take out a Jumbo loan(417K+) are looking in the low 7's right now for a rate. That ought to discourage a few potential buyers.
All this adds up to increasing inventory in a tight lending environment. It's going to be a slow, protracted correction IMO.
Thanks for the feedback and as always those great charts!
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