It was quite a day today in the financial media. I’ve read stories tonight about why it’s great for everyone that the Fed bailed out Bear Stearns, I’ve read stories about why it’s bad that the taxpayers are bailing out Bear Stearns, and I’ve read stories where I don’t think the author had a clue what he was talking about.
But one of the best of the bunch has to be an article at Minyanville.com about why the housing market is nowhere near a bottom yet. On page 2 of the article John Mauldin has a good synopsis of the current situation. He states:
8.8 million homeowners will have mortgage balances equal to or greater than the value of their homes by the end of March.
30% of subprime loans written in 2005 and 2006 are already underwater.
Nearly 3 million homeowners were behind on their mortgages at the end of 2007, with 1 million at risk of imminent foreclosure.
As of the end of last year, 5.82% (!) of all mortgages were delinquent, the highest level in 23 years.
0.83% were in the process of foreclosure, also an all-time high.
When you look at just subprime mortgages, you find that 20% are delinquent (the number is rising rapidly), and almost 6% were in foreclosure.
Finally, the average American’s percentage of equity has fallen below 50% for the first time since 1945.
That pretty much sums up the current state of the market, but he goes on to explain why it’s going to get worse. I’ve said much of this before, but he says it better:
Mortgage lending standards became progressively worse starting in 2000, but really went off a cliff beginning in early 2005. The worst loans are those with two-year teaser rates. As the subsequent pages show, they are defaulting at unprecedented rates, especially once the interest rates reset. Such loans made in Q1 2005 started to default in high numbers in Q1 2007, which not surprisingly was the beginning of the current crisis.”
It’s an excellent article and I encourage you to check it out if you like knowing what’s probably going to happen over the next few years.