The Second Wave Is Coming – It’s Not Over Yet

My husband, Michael cringes when I post things like this – but I never promised to bring you just the Pollyanna good news in the market.  The ’60 Minutes’ piece speculates that we are about halfway through this housing crisis.  According to the show, the first wave of this crisis was made up of sub-prime loans.  The second wave is predicted to be  Alt-A loans and Option ARMs that have adjustments coming.

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Sean Egan, considered to be one of 6 Wall Street experts that ‘predicted the fall of the financial giants’ says that the housing market is incapable of a recovery until we ‘clear out the garbage’.  I couldn’t agree more – and this point always takes me back to the same frustration.  If there were real solutions in how banks were processing the glut of short sale inventory, we could expedite the cleanup and expedite the recovery.  Unfortunately, that is not happening.

One portion of the ’60 Minutes’ piece that had me roll my eyes just a bit was the acupuncturist – turned real estate investor that was supposedly clueless about those Option ARM loans she used on her multiple investments.  She was putting 20% down, but didn’t ask questions about the loans she was using.  Why?  She was busy. “Busy looking at properties.  All day.  All the time.” Give me a break.

The arguments were a bit one sided and accomplished what the media loves to do – speak to people’s fears.  Consumer confidence is a facet of recovery and  pieces like this don’t help.

That being said, there is no denying another wave is coming.  If the Alt-A and Option ARMs are with folks like our acupuncturist friend, then clearly there is reason for concern, but I believe that there are a good deal of folks who understood their loans and investments.  Maybe I’m wrong.  Time will tell. I also think there are a good deal of these folks who will likely refinance these notes given the current low interest rates.

Mr. Egan cites the NAR stats of record supply.  That’s a statistic that you must evaluate locally.  Steven Thomas, President of Altera Properties, noted recently on his blog that demand in ’07 was ’51% less than it is today’.  Mr. Thomas goes on to state, “Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher.  Two years ago the inventory was at 12,661, 273 additional homes compared to today.”

As we have mentioned here, in the lower price points we are seeing significant movement and dramatically less inventory.  The upper price points are not enjoying those bits of good news.