Economy.com’s Mark Zandi is no zealot, so if he is using terms like this "negative cycle" homebuyers ought to take note:
"There is a substantial risk that the mortgage market will devolve into
a self-reinforcing negative cycle," Zandi said in a release this
morning. "Mounting credit problems could beget more restrictive
underwriting standards, which would weigh heavily on the fragile
housing market as potential borrowers become unable to obtain credit,
and existing borrowers facing large payment resets are unable to
refinance. Foreclosures would mount, leading to weaker house prices,
falling homeowners’ equity and even more substantial credit problems.
The cycle repeats with more intensity and the mortgage market
corrections unravel into a crash."
Thanks to the Boston.com’s new real estate blog for posting the quote above. We discussed the same worse-case scenario yesterday with NECN, but used the word — "vicious cycle" — an economic term some might substitute for the "negative cycle" above.
My question is whether social networking and unfiltered consumer
access to real estate data make the downcycle more vicious?" Not
through lack of civility, but data transparency that allows home buyers to
make more informed decisions, putting further downward pressure on prices. To see what I mean, visit our new MLS access which allows users to easily compare asking prices to price trends and more on Zillow.com.
Here’s what we wrote two years ago about the coming negative cycle before Economy.com issued it’s warning today: From froth to foreclosures: You ain’t seen nothing
When the market really cools, things will get worse, potentially
much worse. A recent New York Times article called the magnitude of
interest-only and adjustable rate mortgages "The Trillion-Dollar Bet" because "$1 trillion of the nation’s mortgage
debt – or about 12 percent of it – [will] switch to adjustable payments in 2007." Will foreclosures spike then?
An upcoming article in the July / August 2005 issue of The Atlantic Monthly, entitled "Countdown to a Meltdown,
speculates that the situation could become so bad that "repossession
riots" will occur in some areas. Do you think that fictitious forecast
is irresponsible fear mongering, or foreshadowing a falling market that
will make current home buyers look foolish; or worse, candidates for
foreclosure in the future?
Cross-posted in the forum of The Real Estate Cafe’s social networking site. Please join the discussion with other home buyers and sellers there.