As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.
The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth.
Already, home prices in many areas are declining, and the "For Sale" signs are hanging in front yards longer. There's now at least a 50% risk that prices will decline within two years in 11 major metro areas, including San Diego; Boston; Long Island, N.Y.; Los Angeles; and San Francisco, according to PMI Mortgage Insurance's latest U.S. Market Risk Index.
Dean Baker of the Center for Economic and Policy Research says that if housing prices fall at least 10%, it could be even more damaging than the collapse of the high-tech stock bubble in 2000.
"If we do get a spike in mortgage rates, and a modest decline (in the housing market) turns into a rout, there's almost no bottom to that," Baker says. "That's a crash scenario."
USA Today, January 18, 2005
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43% of First-Time Home Buyers Put No Money Down
By: Pete Kendall, January 18, 2006 |
"With real estate, you can't pick up the phone and sell. You need to find a buyer for your house in order to sell it. In a depression, buyers just go away."
Conquer the Crash |
Remember the housing bubble? We talked about it on August 11 and August 18 and just about every issue of The Elliott Wave Financial Forecast since. This month’s issue of The Elliott Wave Theorist includes a three-page write-up by Doug Thorburn on the likely repercussion for the world economy. The latest update above is from this morning's issue of USA Today. It says uneqivocally that the rout is, in fact, on. From a contrary perspective, it may seem somewhat unusual to have a “crash scenario” announced on the front page of the nation’s largest daily newspaper, but such a high profile assessment is actually just what our forecast calls for. As we explained in August, “At the really big peaks, even contrarianism has its limits." |
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