From Bloomberg:
Where to Invest If Your Home Equity Evaporates: John F. Wasik
If you can’t depend on your home equity increasing during a U.S. housing downturn, where do you turn for growth?
U.S. bonds offer cold comfort. With ultra-safe six-month Treasury Bills yielding as much as 5 percent, your real return is paltry after inflation and taxes.
What about U.S. stocks? The specter of a housing recession, consumer slowdown and more ugly surprises in the subprime mortgage market weighs heavily on Wall Street now. That leaves a compelling investment typically neglected by most investors: non-U.S. stocks with high dividends.
Since the U.S. home market may get blistered further by a general economic decline, more houses coming on the market or bond yields surging, you will need to find growth elsewhere. If you haven’t considered how the global economy is propelling emerging markets, it’s time to take a hard look.
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Massive equity deflation may be taking place. Fueled by cheap mortgage money, low lending standards and the willingness of Americans to plunge ever deeper into unsustainable debt, the housing market was due to hit the brakes.Banks and brokers lent with abandon, including to millions who were one interest-rate increase away from foreclosure in subprime mortgages.
As Peter Schiff, an investment adviser and president of Euro Pacific Capital Inc., in Darien, Connecticut, says: “Wall Street may be able to buy some time by bailing out troubled hedge funds to keep their worthless subprime mortgage investments off the market, but no such safety nets exist for strapped consumers looking down the barrel of resetting adjustable rate mortgages.”
“Inventories will continue to balloon,” adds Schiff, “until reluctant homeowners come to their senses and slash prices.”
When supplies exceed demand in a time of rising rates, it could be years before the housing market grows again.
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Who would have thought that building home equity in the U.S. was risky?Yet millions believed that their domicile’s nest egg was assured and provided a firm foundation for retirement. It’s still likely that in many markets, you won’t lose much, if any, home equity, provided the current downturn isn’t prolonged or severe.
The best strategy is to ensure you are getting growth from somewhere. For that, you may have to look far from home.
Here`s why ……..
New Today! New York Times Talks Bubble
watch: http://www.paperdinero.com/BNN.aspx?id=261
Gretchen Morgenson, Pulitzer prize winning financial columnist with the New York Times, discusses at length the details of the housing and mortgage meltdown. Morgenson, in no unequivocal terms, correctly labels the housing run-up a “bubble” and a “mania” and also blames Wall Street backed easy lending, lightly regulated mortgage brokers, and lax rating agencies as a major cause. She further suggests that the decline will be protracted and “not pretty”.
Originally aired on: 6/29/2007 on Bill Moyers Journal
Running Time: 14 minutes 6 seconds
It’s still likely that in many markets, you won’t lose much, if any, home equity, provided the current downturn isn’t prolonged or severe.
And you won’t get very wet if the rain doesn’t come down too hard or for too long.
Actually, poking fun isn’t really my point here, my point here is why is Wasik saying that. Obviously he doesn’t know, as his qualifying construction indicates, but he feels the need to reassure for some reason.
I’m sure someone who was starting to worry heaved a sigh of relief this morning. “wooof, I was really starting to panic about the size of my mortgage, but John Wasik doesn’t expect things to be too bad, and that guy’s pretty smart.”
If you wanted gentle reassurance that everything is going to be all right, Wasik gave it to you this morning. If you still have your wits about you, it might seem like he was just trying to fill space, because that sentence certainly doesn’t do much more than that.
Mortgage resets: Record bill coming due
Billions in subprime ARMs will be subject to higher payments.
By Les Christie, CNNMoney.com staff writer
July 9 2007: 5:20 PM EDT
NEW YORK (CNNMoney.com) — More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.
Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low “teaser” rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.
http://money.cnn.com/2007/07/09/real_estate/resets_are_coming/index.htm?postversion=2007070914