Friday, November 18, 2005

"Opportunity" Isn't The Word I'd Use...

by Tom Bozzo

The Washington, D.C.-area housing bubble looks like it's at best at its peak of inflation, with listings growth vastly outstripping sales (here, too), median prices well off the summer peak in Montgomery County, Md, and asking prices falling in amounts with as many as five zeros after the first digit. The Washington Post was able to find someone looking on the bright side, though:
But [Sandra Cabral, a real estate agent in Kensington, Md.] sees an upside to the situation, with good opportunities to make purchases cheaply in the future. "Within two or three years, there's going to be a whole lot of foreclosures, because with all of the interest-only loans, a whole lot of people don't realize that in two years their payments are going to go up."

Actually, the Eeek! moment was earlier in the week, flipping through one of the papers, where I'd come across an article noting that not only are the spreads between ARMs' teaser rates and 30-year fixed rate mortgages as low as they've been in a Long Time, but also that a typical one-year ARM would adjust next year to a rate north of 7% under present circumstances. Or, ARMs do not look like good deals at all, unless the fixed-rate period is carefully matched to one's expected tenure.

We'll be curious to see how many peasants end up disrupting Alan Greenspan's retirement, pitchforks in hand.
One opportunity is going to be in the stock market. When the stock market crashed, much of the money that would have went into the stock market went into houses. Now that housing is slowing down, all the money is going to flow somewhere.

Buy on margin and use whatever equity you have in your house for leverage. Trust me.
I predict the same "opportunity" will strike the San Francisco Bay Area as well.

There will be many unhappy people here when their mortgage payments balloon, and their home values drop.
Bryan: Among the catches are that stocks are much more easily liquidated than housing, housing transaction costs are very high, and exposure to declines in housing-related wealth is much broader than with stocks. Also, in the event of a sharp and/or protracted decline in values, a lot of "all the money" will just vanish (though there have already been problems with valuations just being made up).

I assume there's an omitted emoticon after "trust me."

As Janelle Renée's comment implies, a more realistic position would be to hang on and hope that there won't be too many people caught with inadvisably risky loans if we see anything other than a "soft landing."
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