Random Thoughts

Image from RECHARTS, click to enlarge.

This chart from Credit Suisse shows the volume of ARM resets including the option arms that have been popular in recent years for purchasing property in some real estate markets that are a little frothy. Chart is based on January 07 being the start point, with the number of months after January 07 listed across the bottom of the chart.

We are just entering the time period where the reset volume will be about 2.5 times the previous volume. What’s that mean for the borrowers with those loans? There’s going to be a hell of a lot of people who are going to have huge jumps in their monthly payment. That’s going to lead to increased defaults in the coming months.

I’m not going to keep posting on bubble issues, these past two posts were just to illustrate why people have been saying the number of foreclosures is going to be going way up.

There is an interesting chart at Housing Tracker that includes a ratio of housing cost divided by average income. It’s fun to look down from the top seeing the variation in that ratio until you reach Barnstable Town, MA that has a ratio of 5.6 Now, I don’t have any idea where Barnstable Town is, but it’s distinctly more expensive than the previous communities in that chart. O.K., maybe it’s a really nice area.

Check out some other cities:
Honolulu, HI 8.7
Los Angeles, CA 10.4
New York, NY 8.4
Oakland, CA 8.7
San Diego, CA 8.9

Ask a Realtor in any of those areas, I’m sure they’ll tell you it’s a great time to buy. Ask an investor, I’m sure they’ll tell you they are looking either for very specific properties, or are going out of area. The ONLY way I’d buy in those areas at this time was if the property was hugely discounted in price, or the income produced by the property would be enough to cover it’s debt.
Certainly looks bubbly to me.