I’m a numbers guy. Sure I have principles that guide my thought on many issues, but I firmly believe that numbers don’t lie. And the numbers bode ill for us in the next few years.
The subprime mortgages that hosed our economy last year come in 1, 3 and 5 year variants. Most 3 year versions had their loans adjusted last year. Adjusting means that negative interest, interest only, balloons and other wild ways to get into a bigger house than you really can afford all come due.
So we get 2009 to “rest” a bit. Not “rest” really, but to have the folks who can’t afford their houses bail on them. In Washington County that means about 200 homes foreclosed on each month.
And then the 5 year loans hit in 2010. The bad news is that because they were so attractive in terms of house buying leverage, and because they are coming due in a down market, many, many MORE people as a percentage of the loans sold will have negative equity in their homes (be upside down).
What does it mean? We ain’t out of the woods yet.
My sense is that this will be worse that 2008 because the bottom feeders (guilty!) out buying houses in this reduced market will be tapped out. That plus high unemployment and a continuing aging population put the demand side of the housing market way out of kilter with the supply side.
What does it mean? Declining house values. Continued slumps in big manufactured goods. California, New York and New Jersey will finally be forced to massively cut their government’s size and actually shrink, not grow slower. And expect continuing weakness in all sectors of the economy (except the Federal government).
Hey.. what about the rapid devaluation of the dollar? Exactly – just try and sell a house while competing with 1000’s of foreclosures and 13% interest rates.
Politically… this means Barack Obama is a one term President with his effectiveness ended with his defeat at the Health Care Waterloo. It also means massive turnover in the Congress in 2010.