Existing homeowners vs. future homeowners…
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
But what happens to existing homeowners if the value of their homes is allowed to drop?
If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.
I think the housing market still has issues with a large amount of bad loans still out there… mortgages that people refi’d with a jump in rates after 5 years. These loans were still being made in 2007 and most had a 5 year grace period of low rates before the increase happened. That makes 2012 the end game for these loans, so we’re still a few years from there.