Subprime rot spreads

Now the Alt-A loans are getting hit with more defaults, and this sector was originally considered safe. Not any more.

More defaults means housing prices will drop because of all the distressed homes on the market. Current homeowners who are still solvent will find it harder to trade up because there will be fewer buyers for their house.

Appraisers, real estate agents, contractors, Home Depot, etc. will all have less business and less income.

Just another example of the boom-bust cycles of capitalism…

  • dj

    The market will compensate. Yes, there are tough times ahead for the housing market. But forward-thinking investors (capitalists all) will move money from other areas into real estate, hoping to get good deals in anticipation of the next wave of the cycle. They will improve and rent out these homes. (Homes gotten through foreclosure often need repair.) They will buy their supplies at Home Depot, and hire appraisers so they can get HELOCs to pay for the work. Meanwhile, the money they invest in real estate will likely come out of the stock market, possibly causing a ripple effect.

    Many of these investors will be realtors, who know (or think they know) the market better than the average investor. But the bulk of realtors, especially those who got their license during the boom, will find another line of work. Accounting, perhaps…

  • dj

    BTW, it is an interesting phenomenon that despite the advice to buy low and sell high, so many people buy high and sell low. Many of my friends panicked and sold their stock during the crash of 2000, locking in their losses instead of holding it until the value had recovered. With real estate that’s more difficult, because much of it is financed with mortgages. But still, when the market is down, it’s time to buy, not sell. The long-term prognosis throughout the southwest remains strong.

  • But the bubble is over, and the pain not nearly done with yet. Just depends how long it takes for real estate to recover…

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