From the AP:
Analysts: Housing pain to worsen
The current housing slump, which began in late 2005, probably has another year to go before things turn around. Before it is over, home prices — which soared during the boom years — will probably have fallen by the largest amount in any downturn in the post World War II period.
The problems in housing have been a serious drag on the overall economy — slashing more than a full percentage point off growth in some quarters. And those adverse effects will get worse in coming months, many private economists believe, reflecting the fallout from the severe credit crunch that hit in August.
The betting is that the overall economy will be able to avoid a recession, but that it will be a close call, with the point of maximum danger still ahead.
“I think the housing market has got another year of very weak sales, falling construction and lower home prices. And all of that assumes that the economy holds together reasonably well and we don’t have a recession,” said Mark Zandi, chief economist at Moody’s Economy.com.
The biggest worry is that mortgage financing problems will grow even more severe, with soaring defaults dumping more homes onto an already glutted market, driving prices down further.
In a new report, the Joint Economic Committee estimates there will be 1.3 million foreclosures from mid-2007 through 2009 in subprime mortgages, loans provided to borrowers with weak credit histories.
Those foreclosures will wipe out an estimated $71 billion in housing wealth directly and an additional $32 billion indirectly by lowering the values of neighboring homes, according to the report by the JEC’s Democratic staff. The report predicts that will end up costing states $917 million in lost property tax revenue through the end of 2009. The states of California, New York, New Jersey and Florida are expected to be among the biggest losers.
There is so much talk about Creative Financing allowing people to buy homes in NJ with “Zero money down” and in some cases “Negative Amortization”. The old rule required PMI (Private Mortgage Insurance) anytime you had less then 20% of purchase price to put down. If PMI still exists as a requirement, won’t Insurance Companies take a hit on Mortgage Defaults? I don’t see any concerns published on PMI negative effects with massive Mortgage defaults?
I think the issue is that many people got a 2nd mortgage aka a piggy back loan which eliminates the requirement of PMI. If you bought a house with 15% down, you needed PMI. If you bought a house with $0 down 80% ont he 1st mortgage, 20% on the 2nd, I don’t think you needed PMI. I could be wrong.