JEC Economic Report: Subprime Crisis
A: Hat tip to CR, for bringing this up on his blog. This joint economic committee's report and recommendations from Senator Schumer and Rep. Carolyn Maloney is a very interesting read to say the least. Put your helmet on.
JEC: The Subprime Lending Crisis
Quick Points:
1) Aprox. $71 Billion in housing wealth will be directly destroyed through the process of foreclosures
2) More than $32 Billion in housing wealth will be indirectly destroyed by the spillover effect of foreclosures, which reduce the value of neighboring properties
3) States and local governments will lose more than $917 Million in property tax revenue as a result of the destruction of housing wealth caused by subprime foreclosures
4) We estimate there will be approximately 1.3 million foreclosures and a loss of housing wealth of more than $103 billion through the end of 2009 (assuming estimated 18% foreclosure rate)
*click to enlarge
But most troubling in my mind is the trend of mortgage originations towards subprime. Take a look at this statistical analysis showing the percentage of subprime originations and the percentage of these subprime originations that were securitized from 2001 until 2006. It's clear we are in the heart of the mess right now, with more carnage to come.
MORTGAGE ORIGINATION STATISTICS
Print out the report and read it on your commute if you can. Its an eye opener.
Posted by Bobby
Sat Oct 27th, 2007 12:43 PM
Noah, thank you for this well-researched report. The report shows that New York is the fourth most bubbly state in the country and would suffer a significant price decline. Are we referring to houses in Albany here or in Montauk? How does this affect Manhattan? Will my realtor's mantra that "Manhattan is an island, etc, etc." remain strong? Manhattan, like other bubbly places, experienced significant price increases during the bubble period of 2001-2005. But the prices are stuck and have so far defied gravity. Your thoughts, please.
Posted by Noah
Sat Oct 27th, 2007 05:16 PM
Bobby - Thanks. The report obviously includes all of the state of NY, including LI, so YES it does include single family homes. Manhattan re market has held up VERY well in the face of the nationwide housing slump.
Your realtor's mantra is not off, and there are a number of factors contributing to the strong market here in NYC including:
1. weak dollar bringing foreign demand
2. high rents / low vacancy
3. very tight inventory
4. very wealthy and qualified buyer pool
5. trend to live closer to work
6. growing population
7. strong jobs
Manhattan's first real test will come this upcoming wall street bonus season given the credit squeeze. If we get through that, sales will keep pace and keep inventory low. As long as inventory is this tight, prices will stay high. Its an inventory problem, Whatever will contribute to changing that, will give this market a slight correction. How bad the credit squeeze hits the wallets of consumers and therefore wall street, will depend on the severity of our correction. We have a history of lagging in recessions for housing, and leading in recoveries. This time around seems no different.
Watch inventory, sales volume for coming months as a sign inventory may start rising, and upcoming bonus season for strength of buyer pool during what is normally frenzy months of JAN-APRIL. If the frenzy isnt here, and inventory piles on as this is the time to sell at top dollar, we may see a shift to more of a buyers market where sellers compete against each other to move property, and therefore have to lower prices. Its all about the buyers and whether they will keep up demand, or not and result in rising inventory.