Some grist for the mill:
Over 3% of sub-prime mortgages that were originated this year (2006) area already at least two months past due. I.e. they defaulted almost immediately after they were originated.
Over 37% of sub-prime mortgages originated in 2006 where 100% LTV. I.e. Now those LTVs are > 100% and equity is negative.
Over 45% of sub-prime mortgages originated in 2006 where “low documentation” loans. I.e. they did not require some combination of income or asset verification or both. These no-doc loans are the ones used to allow people to borrow more than they can afford to repay. Very common. Take it from a guy who was a mortgage loan officer for five years in the 1990s. And the creative financing only increased since then.
Ratings agencies are downgrading sub-prime bonds. I.e. any liquidity that remains will come at a steep price.
This is just a taste of the statistics. And the worst is yet to come. What does it all mean? Same thing we’ve said it’s meant for the past two years: Recession — probably the one we should have had after the 1990s Internet bubble popped but was postponed by Alan Greenspan, who flooded the world with liquidity and enabled the the speculation to shift from stocks to real estate. Some of you will recall that I temporarily named this blog (and possibly a future book) in Sir Alan’s honor: Alan’s Bubble (www.alansbubble.com). In fact it was that name that got Cubetrader mentioned in the Financial Times: Download Fond_farewells_or_sad_goodbye_2005-12-5.jpg(note the quote you see at the end of paragraph is not mine and I have no idea where the FT writer got it or why he attributed it to me).
Here’s one more piece of anecdotal evidence for you. This time gleaned from my own primary research yesterday on Craigslist. In response to this ad (see below) about a resort condo for sale in Whitefish, Montana, I received the following email reply (see below, below). Click on the thumbnails for full-size / readable images.
I underlined key text, including that this person is from Phoenix, AZ, one of the mother-ship bubbles, and has purchased this thing during pre-sale, along with two other units that are owned by her family members. The intention was to flip for big profit. The reality is going to be the exact opposite. Multiply out this scenario literally thousands of times and now you know where we are in this process. The unwinding has only just begun.
On the bright side, if you are in the market for what a great second home or condo just about anywhere in the world then 2007 or 2008 could be the perfect time to pick one up at a distressed prices. Cheers!
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