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Millionaire Now! by Larry NusbaumThis blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth". |
Delinquincies
Posted on 09/22/2006 00:00 AM | Link | Post Comment
With home prices set to move even lower as inventory is reduced, and monthly payments set to rise as mortgage rate resets kick in, more and more homeowners are in danger of delinquency, suggesting more widespread foreclosures. As you can see in the chart below, housing affordability has been in a free fall.
Delinquencies lag affordability, but note the big subsequent surge in delinquencies after affordability sank in 2000–2001. Affordability is much worse today than it was during the last recession, in 2001, while household debt payments have jumped to nearly 14% of disposable income, an all-time record. With home prices and mortgage rates receding, there is hope for a bottom in affordability. But given the lagged effect, a rise in delinquencies may already be baked in the cake.
Banks may be at risk as well, as they have become steadily more dependent on residential real estate loans. As seen in the chart above, residential real estate loans as a percentage of total bank loans have surged from about 23% in 1999 to about 31% today.
Delinquencies lag affordability, but note the big subsequent surge in delinquencies after affordability sank in 2000–2001. Affordability is much worse today than it was during the last recession, in 2001, while household debt payments have jumped to nearly 14% of disposable income, an all-time record. With home prices and mortgage rates receding, there is hope for a bottom in affordability. But given the lagged effect, a rise in delinquencies may already be baked in the cake. 
Banks may be at risk as well, as they have become steadily more dependent on residential real estate loans. As seen in the chart above, residential real estate loans as a percentage of total bank loans have surged from about 23% in 1999 to about 31% today.
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