“The slumping U.S. housing market is about to get a lot worse”

From Bloomberg:

Housing in U.S. Poised to Worsen, Derivatives Show
By Darrell Hassler and Hamish Risk

The slumping U.S. housing market is about to get a lot worse, according to traders of mortgage-backed securities and the so-called derivatives on which they are based.

The ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January. There are more than $500 billion of such notes outstanding.

The increase in the index shows traders expect mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale as measured by the National Association of Realtors is at a 13-year high. The percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998, Moody’s Investors Service said Oct. 17.

“Delinquency trends and home prices” show a weakening real estate market, said Scott Eichel, head of credit trading for New York-based Bear Stearns & Co., the biggest underwriter of bonds backed by mortgages. “A lot of investors that have concerns about the housing market” are using the ABX index to speculate on a continued drop, he said.

The housing boom spawned new types of mortgages that allowed consumers to buy homes they may not have been able to afford otherwise.

About 18 percent of all mortgages issued in the first half of the year were to borrowers considered most likely to default, such as those with high credit-card balances, up from 2.4 percent in 1998, based on data from the Mortgage Bankers Association. The Washington-based trade group’s 2,700 members represent 70 percent of the home-loan business.

The amount of bonds backed by subprime loans more than doubled since 2001, according to the Bond Market Association, a New York-based trade group of more than 200 securities firms.

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19 Responses to “The slumping U.S. housing market is about to get a lot worse”

  1. Jay says:

    My realtor emailed me something about a new Otteau report but I don’t see it on their sight. Do you have to be a member or something?

  2. Jay says:

    from the Boston Herald
    Housing market continues trend
    By Jerry Kronenberg/ Breaking News
    Monday, October 23, 2006 – Updated: 02:00 PM EST

    The Bay State housing market is extending its fall into the fall.
    The Massachusetts Association of Realtors reported today that median house-sale prices fell 5.3 percent in September to $341,000. That’s 9 percent off the $375,000 peak hit in August 2005.
    The number of houses changing hands also tumbled 23.9 percent to just 3,435 units – the worst September showing in a decade.


  3. James Bednar says:

    The October Otteau Report should be out any day now.


  4. Jay says:

    He said he already has it…?

  5. Lindsey says:

    In the article, but clipped by you:

    “Sales of new and existing homes probably will drop 9.4 percent to 6.76 million (my emphasis) in 2006 from a record last year, McLean, Virginia-based mortgage buyer Freddie Mac said Oct. 10.”

    That figure is likely optimistic. Right now existing sales are off 8.8% and new sales are off better than 17%. I think total sales could come in under 6.6 million,or even 6.5.

    Even weaker numbers of sales mean even less of a chance to sell and get out without getting foreclosed on.

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