Will foreclosures continue to kill the subprime lending market? Will 2007 see an upward trend?

Answer 1

Nobody can say with certainty. There are a substantial number of people who bought homes in the last few years, and face problems with paying high mortgages.

The other problem is that many of those homes aren't worth what they paid for them.

If forclosures continue, it could have a serious affect on the entire stock market.

Much depends on the new Federal Reserve Chairman Ben Bernanke. In the March 22 nd. Federal Reserve meeting, should they decide to decrease interest rates, it might help this situation out...but I personally feel it's gotten worse recently to the point where falling home prices will hurt the entire economy.

There is no reason for people to want to continue living in their homes when the home isn't worth what they paid for it.

Those who bought modestly priced homes recently probably won't see big declines.

Those who were suckered into buying homes for almost a half million dollars, and were approved for high mortgages...will have to abandon them.

This is an economic cycle that has to run it's course. Only this time, I feel too many homes were artificially inflated in value to unrealistic prices...and I suspect many home appraisal outfits are going to be implicated in this scam.

Answer 2

Great Article that answers your question and a lot more:
http://www.rgemonitor.com/blog/roubini

1. Will the US economy experience a hard landing or a soft landing in 2007? Most likely a hard landing recession or, at best, a growth recession
2. The housing recession is getting much worse not better. Housing is not bottoming out. Starts and home sales are in free fall and will get much worse before bottoming out in 2008, not in 2007. Home price action will be sharply downward. See new Roubini and Menegatti paper on housing.
3. There is clear contagion from housing to other sectors of the economy: we have now an auto recession, a manufacturing recession,a real investment recession as all four components of investment are now plunging; sharp slowdown of the service sector too; soon contagion to a saving-less consumer who is at its tipping point and on the verge of faltering.
4. Subprime problems (meltdown/carnage) are not limited to subprime sector. They are already a widespread problem for all parts of the mortgage market. Garbage lending practices used for subprime (zero or low down payments, low/no documentation on incomes and assets, interest rate only, option ARMs, teaser rates, negative amortization) were very widespread and common among near prime and prime mortgages (see ARMs, Alt-A, piggyback loans, home equity loans). Effectively measured subprime, near prime and dangerous lending was close to 50% of mortgage originations in 2005-2006, not the 13% share of subprime in the overall stock of mortgages.
5. There is a serious risk of a generalized credit crunch, first in subprime (where the crunch is already severe), then to all mortgage markets, then to consumer credit and overall credit markets. The market myth and spin of a credit crunch limited to subprime is faltering by the hour.
6. There are already serious signs of contagion to other credit spreads (CDS spreads on major brokers being now near junk, CDX, Itraxx, CMBX, swap spreads all significantly up); and increases in all sorts of measures of market volatility and risk aversion. This contagion will get much worse in the weeks and months ahead.
7. This is not a temporary blip of volatility and turmoil (as in spring 2005 and spring 2006) as this time around there is a true and serious growth hard landing risk in the US rather than the temporary and unfounded inflation scare of spring 2006. Financial markets are now reacting to seriosly weakened economic fundamentals in the US and to dependence of global economy on the US business cycle. Thus, this is the beginning of a massive market fall after a period of excessive liquidity, bubbles in many assets and markets and underpricing of risk. All sorts of risky assets will be persistently under pressure.
8. The Fed will move – sooner rather than later – to ease. But Fed easing will not prevent a recession in the same way that Fed easing in 2001 did not prevent a recession. With a glut of housing and consumer durables that will take years to work out lower short and long rates will not help.
9. The world will not decouple from a US hard landing; it will experience a sharp slowdown if the US has a hard landing. Multiple channels of transmission from the US to the world. It is still the case that when the US sneezes the rest of the world gets a cold.
10. The bubble party is over. It will be a bumpy ride from now on for global financial markets and for the US and global economy.


Here's a rapid acceleration in non subprime foreclosures for further proof:
http://countrywide-foreclosures.blogspot.com/

Answer 3

Sorry, it is downhill for a while, and the worst is yet to come.
The sub prime is the problem, many subprime companies have gone bankrupt already, the rest have tightened their rules
there are a lot of people coming up for renewal who will not be approved.

without people buying into the bottom of the housing market, the people who are selling can't buy up. the houses they wanted to buy , they can't, so those people can't buy up.

So Sub prime affects the whole market and prices will fall along with increased bankruptsies and forecloseures.

Answer 4

That's a rhetorical question, right? Actually, I just read today that Goldman Sachs is looking to buy into the subprime mortgage now at the currently rock bottom prices.

Answer 5

Bring on the crash already. I'm all ready out of property (exluding my own home) and ready to do some asset-stripping on all the cheap forced sale/negative equity/repossed property. I want blood-in-the-streets.