When the Bubble Bursts: 'Welcome to Housing Hell'

High levels of consumer debt, minimal equity and higher interest rates will soon bring an end to the "housing heaven" to which consumers have become accustomed.

1 minute read

April 8, 2006, 7:00 AM PDT

By Michael Dudley


"Now that buyers are willing to wait one or more years before buying, there are more sellers than buyers. Interest rates, in the meantime, continue going up. Let’s also not forget the Existential Equity Extraction. With $700 billion of sub-prime mortgages written (of which 10 percent could default), $2 Trillion of ARMs set to reset, and mortgage delinquencies near 5 percent, equity to extract is vanishing.

As the refinancing game ends and borrowing costs increase, a significant rise in foreclosures could put a few million more homes back on the already-saturated market! When these foreclosures come, many of the homes for sale will have no equity and the seller will want a quick sale. Buyers will still be choosey, unless there is a real deal and the prices are marked down big time. The entire structure of housing prices will move lower with these forced sales. With mortgage foreclosures mounting up, it could get unbearably hot in Housing Hell."

Friday, April 7, 2006 in MoneyWeek

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