On Wednesday's page A2, the WSJ runs a story about continuing bad news surrounding growing late payments, not just among subprime loans but also Alt-A, the category between subprime and prime that doesn't typically require income and asset verification. Late payments in this category rose to 2.6% in Jan. vs. from 2.3% in December vs.1.3% in January 2006. Mark Zandi, the oft-quoted chief economist at Economy.com, predicts that median home prices will fall almost 5% this year, the biggest drop since the Great Depression. This appears to be a classic credit crunch in the work as lenders tighten standards, preventing some potential buyers from getting loans. Combined with rising foreclosure, the shrinking availability of credit looks to be putting downward prices on home prices. The next couple or few years could be ugly or uglier as some borrowers face "resetting" mortgages, i.e., higher payments. That said, not all markets are reeling. The last sentence of the article: "Prices are falling in some areas but still rising in others."
Today's WSJ Marketbeat runs commentary about "More Housing Pain". He quotes NAR's characteristically rosy David Lereah, who explains that the 8.5% drop in pending new home sales since last Feb. wasn't so good because of "unusually bad weather in February" [Hey, what about bad weather in Colorado circa Decemeber and January?]. Citibank's Lewis Alexander strikes a much more ominous tone: "The U.S. housing market faces considerable challenges, notably the overhang of unsold [and resale?] new homes, the tightening of lending standards for new mortgages, a and a substantial volume of adjustable-rate mortgages that should reset to higher interest rates over the next couple of years." Ouch!
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