3 More Years of Recession?
A few days ago I revisited the ARM adjustment schedule from Credit Suisse that keeps circulating. The chart points out that ARMs will be surging into adjustment once more and it will continue for the next 3 years (until Jan 2012) at roughly the same rate as that which caused the collapse in 2008. Initial analysis by real estate gurus is that the Option ARM loans are expected to have a 61% default rate. And data from late last year indicated that Prime ARMs have the same default rate as Sub Prime ARMs, which was interpreted to mean that holders of Prime ARMs were just as heavily leveraged as their more risky counterparts.
My understanding of the next wave of adjustments is it will apply significant pressure to the economy, undermining any recovery attempt by almost continually lowering the value of homes via mortgage defaults. This in turn means, effectively, that a recovery isn't possible until these resets are done OR the real estate market bottoms out, which is a regional thing rather that state or national one. Assuming my understanding is right, doesn't that mean we're stuck in Recession/Depression for AT LEAST the next 3 years?
It seems like many economists consider that Japan has been in and out of Recession since 1990. We're not so different, particularly since our govt seems intent on buying out the banks and nationalizing bad debt, thus undermining the entire concept of our Risk-Reward economy. Economic news from China indicates that 70,000 factories have closed and 20 million workers have lost their jobs, most moving back home to the family in the countryside, all because of this ARM crash ending the American spending spree. With less money to invest in US bonds, what happens to the Bond market which is mostly supported by these same Chinese investors? And how high will interest rates go? In the 1980's, I remember the prime rate was high enough that a home loan was around 13-15%. In today's market of $400K homes, how many buyers are going to show up? And how far will housing prices required to fall before a viable income-verified mortgage payment at 15% interest can be made? Can anyone here do the math on that?
My most ambiguous questions to you all are these: Is this worse than the Great Depression? And how long should we expect it to last?
My understanding of the next wave of adjustments is it will apply significant pressure to the economy, undermining any recovery attempt by almost continually lowering the value of homes via mortgage defaults. This in turn means, effectively, that a recovery isn't possible until these resets are done OR the real estate market bottoms out, which is a regional thing rather that state or national one. Assuming my understanding is right, doesn't that mean we're stuck in Recession/Depression for AT LEAST the next 3 years?
It seems like many economists consider that Japan has been in and out of Recession since 1990. We're not so different, particularly since our govt seems intent on buying out the banks and nationalizing bad debt, thus undermining the entire concept of our Risk-Reward economy. Economic news from China indicates that 70,000 factories have closed and 20 million workers have lost their jobs, most moving back home to the family in the countryside, all because of this ARM crash ending the American spending spree. With less money to invest in US bonds, what happens to the Bond market which is mostly supported by these same Chinese investors? And how high will interest rates go? In the 1980's, I remember the prime rate was high enough that a home loan was around 13-15%. In today's market of $400K homes, how many buyers are going to show up? And how far will housing prices required to fall before a viable income-verified mortgage payment at 15% interest can be made? Can anyone here do the math on that?
My most ambiguous questions to you all are these: Is this worse than the Great Depression? And how long should we expect it to last?