There is still a huge discrepancy between low and high-end markets.
On the high-end, I will go so far as to say we haven’t even seen a correction yet. 10% off peak prices is not the end of this. The ARM rate re-sets have not even started in this segment, and we have about three more years of this mess to unwind. While the levels of the indexes associated with these loans are still very low, the switch from interest-only to principal-and-interest is going to push some marginal folks to “walk-away”, after they first try refinancing but then realize the low rates mentioned in the article only apply to $417k and lower loan amounts. We have a blueprint of how this ends up right before us… its called “subprime”. And next up is “prime”.
On the low-end, however, I made offers last week on nine different properties before I even got a counter offer. The other properties all got 10+ bids within a week of going live. You can’t source the land and build these homes for less money than they are currently selling for. And you can get 5-10% net ROI on all-cash purchases.
The only question remaining is this: will the indirect effects of the impending high-end market collapse (i.e. slowed consumer discretionary spending, higher unemployment, etc.) drag the entire economy into a deeper recession/depression? …or will the displacement of higher-end consumers bridge the gap to the lower-end segment, as high-end foreclosure displacement stimulates increased demand for more affordable housing?
Lastly, I will point out my observations about today’s stock market upswing coinciding with today’s relaxation of “mark-to-market” accounting standards… is not really coincidental. We’re on a very slippery slope right now… as we keep burning brighter today at the expense of tomorrow’s future. At a time when we try to create more confidence about trust in the system… we’re basically sweeping more toxic assets under the rug. And this is the attempt to clean up the mess we currently have… what happens when we get more toxic assets from loans that haven’t even reset yet? For some perspective here, the amount of loans that have re-set so far, are but a minority of the loans that have not yet re-set.
Moral of the story: the bottom is where you find it.