One Man’s Loss is Another Man’s Gain

Homeowners facing higher rates on their adjustable mortgages are likely to lead the economy into ”foreclosure gridlock,” as an estimated $1.5 trillion in mortgages are scheduled to reset over the next four years. As adjustable rate mortgages reach the upper ends of their limits, homeowners may no longer be able to make their payments, leading to plunging house prices and more foreclosures, as projected in yesterday’s MSNBC article, “Foreclosure Gridlock Threatens Economy.” This reset wave is aptly depicted in the following graph, which illustrates the likely trend of foreclosures, based on mortgage data. 

Despite proposals to help sinking borrowers, including a potential plan to freeze these adjustable rate loans at “starter” rates, as well as potential legislation to give the FHA more flexibility in providing insured loans to those who are having difficulty refinancing their loans, borrowers, don’t look for help any time soon. Only an estimated 1% of the loans scheduled to reset this year have been modified. However, every cloud has a silver lining, and for the potential buyer, this graph can be used to plan for your upcoming home purchase. To you, buyer, peaks on this graph represent when house inventory will likely be high and therefore prices will likely be low, or at least extremely negotiable.  This is a graph of buyer momentum.

Any other thoughts out there?