When the Housing Clock Stops Ticking: Why the Median Price is Going up While Sales are Going down.

If you haven’t noticed, Los Angeles returned to its previous median record price of $550,000 last month. Before you scratch your head in dismay, let us take a look at what is really happening. As you know, higher priced homes are still moving while lower priced homes are stagnant thus skewing the numbers. If a home doesn’t sell, it doesn’t show up in the data. Similar to taking an immensely hard mathematics course where half the class drops out, but those that remain push grades higher. When calculating the final overall class performance the statistics show the best of the best and those that stuck the course out, but what of the students that dropped out? Well as you can see from the Real Homes of Genius examples, prices are coming down. So what do we make of this seemingly contradictory information?

The Sales Cycle

This chart shows sales for Los Angeles County over the past 7 years. As I point out in the above chart, each January and February we hit a trough because of the slower selling brought on by fall and winter. This has been the case for each consecutive year since 2000 and is actually part of the normal housing cycle. But what do we have here appearing in summer of 2007? It appears that we have hit a trough 5 months early. In fact, summer sales numbers are looking more like seasonal sales numbers of winter. This chart is also telling because it shows a consistent pattern over time. Those that don’t believe in housing cycles are spinning in their chair wondering what happened this summer. Normally a strong spring and summer selling season allows for the lower numbers in the fall and winter. This will not happen this year. Unless of course we see a radical jump in sales in the next few months. This data is also a good indicator of where we are heading. Keep in mind the data reported is from sales that close after escrow. This data can lag 1 to 2 months. So what we are currently seeing in the actual finalized recorded sales is probably from July to early August. Well of course the mortgage blow out just occurred and credit standards are much tighter since then. So guess what this will do for sales at the slowest time of the year? Either way, this is a much necessary correction and that is why any housing pundits thinking we are going to have some bounce back in the next few months is simply hallucinating and not following the trend.

I’ve been getting some e-mails about timing the market. There are many ways to valuate housing prices. As we previously discussed with 3 housing valuation methods, every city in Southern California is overpriced. If you haven’t noticed the media is now using the terms “housing slump” and “credit crunch” as if they’ve been talking about it for years. Too bad even as late as January and February of this year, they were still carrying the housing banner. Using rhetoric such as “booming” and “amazing” when talking about housing. I’ve seen a few articles pointing out that housing bears have unfairly criticized the media as this New Yorker online piece. Since they link up to a few places including our site, I feel it is important to state why I have been critical of the mainstream media in the past. Clearly, they are now carrying the housing bear flag and there is no problem finding populist information outlets dissecting the housing market. My main issue was during the boom, they kept giving air time to raging housing bulls that have led us into this current market. Dean Baker’s recent study does a great job researching the entire housing bubble and also pointing out that media airtime in the past few years has not been fair and balanced. I recommend you read the entire paper as a primer to this housing bubble. But here is some of the data found regarding media citations:

Media Citations (New York Times and Washington Post) on the Housing Market, 2005-2006

Bulls	Citations
David Lereah, NAR	1796
Doug Duncan, Mortgage Bankers Association	397
David Seiders, National Association of Homebuilders	652
Total	2845

Bears	Total
Robert Schiller, Yale University	516
Edward Leamer, UCLA	88
Dean Baker, Center for Economic Policy Research	248
Total	852

*source: Dean Baker, Midsummer Meltdown August 2007

And regarding the New Yorker, I do agree with the author that many journalists are now scrambling to be first in line to disseminate housing information to the public. In fairness, the media reports what is happening yesterday, today, and tomorrow. Historian and prognosticators they are not.

Case and Point: High Priced Area and Low Priced Area

Back to the median housing price analysis, clearly housing sales have fallen off a cliff. In fact, Los Angeles County saw a 50 percent year-over-year drop in sales last month. Not exactly stellar numbers. Multiple converging factors combined to create a perfect stew of housing stagnation. For one, the credit markets are now tighter and sub-prime is now a thing of the past. Also, appreciation is now gone. So folks are deciding on holding off on buying homes especially with a sudden onslaught of negative media coverage. And something specific to California, August of 2005 saw the largest origination of adjustable rate mortgages at a whopping 70+ percent of all mortgages originated. Guess what was hot? 2/28 mortgages. And what was last month? That’s right, 2 years and now these people are facing larger payments with mortgages amortizing on different schedules. In addition, they no longer have the option of refinancing because this will push payments higher and the reason they took out these exotic loans is to squeeze into an overpriced home. Now why would they go for a higher payment even if they could? As I discussed back in July housing has hit its Minsky Moment.

Let us take at a few case examples for last month to show how higher priced areas are moving up while lower priced areas are getting hit.

Higher Priced Areas Moving Up:

Agoura Hills with a median of $975,000 is up 18.9 percent year-over-year.

Arcadia with a median of $752,000 is up 19.3 percent year-over-year.

Hermosa Beach with a median of $1,255,000 is up 15.6 percent year-over-year.

La Canada Flintridge with a median of $1,455,000 is up 7.4 percent year-over-year

Wow! The housing party is still going strong. Why look at data when all 10,000,000 folks in Los Angeles live in these areas. Let us take a look at some lower to middle priced areas:

Artesia with a median of $370,000 is down 26 percent year-over-year.

Baldwin Park with a median of $400,000 is down 11.1 percent year-over-year.

El Monte (South) - with a median of $381,00 is down 20.3 percent year-over-year.

Montebello – with a median of $535,000 is down 10,8 percent year-over-year

You clearly see the pattern and why the median price is skewed higher. For one, more sales are happening in the higher priced areas so they have a larger subset. Sales in lower areas are facing intense drops in sales and downward pricing action. Could this be because many of the past buyers bought with sub-prime loans that are no longer available? I doubt anyone in Palos Verdes would avoid buying their dream home because of a lack of sub-prime loans. An interesting thing to note is middle class neighborhoods are facing a stagnant market with prices trending down slowly but sales having a sudden stop. I expect that we will see the lower end get hammered first as it currently is and then have the middle areas tip over as well. The higher priced areas will be the last to adjust.

How low will we go?

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Dissecting a County of 10,000,000 People: The Housing Demographics of Los Angeles.

As we reach a record 16 year high of inventory, the biggest supply since 1991 we are starting to realize that housing was fueled by easy credit. If housing wasn’t fueled by easy credit and went up because of rising incomes and demand as many in the housing industry proclaimed, then why in a few short months has stopping subprime lending and Alt-A loans brought the entire market to a screeching halt? It is becoming more apparent that lax lending standards and easy credit were the fuel that kept this fire burning even though the wood was turning into ash. We were running on fumes. The only thing that would keep this boom going is less restrictive standards and I’m not sure how much lower we can go without our money turning multiple colors and becoming a real game of Monopoly. Unbelievably those in the housing industry and politicians are calling for weaker standards. Here is a list of some of their ideas:

· Increase mortgage caps from $417,000. Since anything above this is considered jumbo many in the industry want these caps higher because areas such as California, have inflated houses way above $417,000.

· Dropping the Fed Funds rate. The Fed has already dropped the discount rate.

· Bail Out Funds. A local official is looking to create a multi-million dollar bail out fund for families in foreclosure. The preliminary information seeks to give struggling families $10,000 in assistance. $10,000 will buy a family maybe 4 months at current California prices.

· Bring the Government Into the Subprime Arena: This is one of the absurd propositions and a perfect example of corporate welfare. Wall Street is no longer buying these risky loans. Instead of learning the lesson that maybe there was some irrational exuberance in the credit markets many are now calling on the government to back these loans.

These “solutions” miss the boat completely because homes are simply not worth what people paid for them. Plain and simple. Incomes could not support market prices without the crutch of exotic banana republic loan products. The loans almost by default encouraged flipping and a nomad culture of moving up into larger homes. There is really no purpose for a 2/28 loan or many of the other mortgage products that flew into the market. Many will argue otherwise that this is for the sophisticated investor. Maybe. But it wasn’t used this way. See, the underlying message of a 30 year fixed conventional mortgage implies that you are looking to stay in your home for a few years. If the market goes up, then you sell and move on. You didn’t have a ticking time bomb forcing your next move with an invisible hand. If the market went down and wallowed in the dumps for a few years, at least you knew your payment was fixed. Now many are facing down the barrel of a locked and loaded mortgage ready to reset in the face of a depreciating market. Whether they knew it or not, they’ve suddenly become speculators and are witnessing a margin call. Either pay more cash to stay or sell. And many of these loans had 3 year prepayment penalties. Basically these products only made sense to those earning higher commissions and hungry investors chasing higher yields.

With this as our back drop, I wanted to dig into the demographic facts of Los Angeles. I’ve already discussed that Los Angeles is a county with a renting majority. But I wanted to find out how much change has occurred over the last few years. I’ve reviewed four years of data from the Census data sets regarding housing and economic data pertaining to Los Angeles County. Has population boomed? What is the overall cost between renting and owning? Did people really go haywire with mortgage equity withdrawals? These are a few of the questions we will seek to answer.

Los Angeles County Population and Income

Argument #1 – Housing has boomed because of population growth.

First, as you can see from the above chart the population of Los Angeles County hasn’t exploded into another dimension. In fact, it dropped in 2005. The data set doesn't include 2006 and 2007 numbers but we can estimate numbers have stayed relatively the same. Even if they have gone up, there are studies showing a net migration out of middle-class families from the state. The numbers balance out because lower-waged workers filled the gap. But are these the people pushing up the market prices? Let us take a look at the median family income for the same data set:

Argument #2 – Income growth is in direct proportion to housing appreciation.

Clearly income growth is not the reason for housing growth. Even with the big jump in 2005, the median family income only increased by 5.5 percent. The previous three years saw stagnant wage growth. However, during this same time period we find the following data for housing prices in Southern California:

Median LA County Home Price:

2002: $266,000 (July 2002) YoY Increase: 15.1 percent

2003: $328,000 (July 2003) YoY Increase: 23.3 percent

2004: $406,000 (July 2004) YoY Increase: 23.8 percent

2005: $488,000 (July 2005) YoY Increase: 20.2 percent

2006: $520,000 (July 2006) YoY Increase: 6.6 percent

2007: $547,500 (July 2007) YoY Increase: 5.3 percent

Doesn’t exactly coincide with the data we are finding does it? In fact, we had three years of consecutive 20+ percent annual price gains! The annual housing price gains amounted to more than the annual family median income in the county for 3 years. Why work when you can live in your home and make more money than your job?

Looking at Owners vs. Renters

Argument #3 – 70 percent of people own their homes in the United States.

The caveat to the above argument is that this statistic doesn’t apply to Los Angeles County. 10,000,000 people live in a micro world that bucks the trend of the nation. As you can see from the above data, not once in the four years from 2002-2005 did owner occupied units ever take over renter occupied units. Even at the peak of buying in 2004 with every imaginable toxic loan flying around like the monkeys in the Wizard of Oz, renters still held a majority over owners. People also argued that a large number of those that owned had absolutely no mortgage. Let us take a look at the data:

Argument #4 – Many people own their home with no mortgage.

Clearly those without a mortgage are a very small subset of the market. In fact 4 out 5 owner occupied homes do carry a mortgage in Los Angeles County. And the interesting thing to note above is the nice jump of non-mortgaged homes to mortgaged homes from 2003 to 2004. Clearly this had something to do with the mortgage equity withdrawal mania. So the housing industry would like you to believe that many people own their home outright here in Southern California. They are wrong on two fronts. First, as we clearly see from the data the majority of the 10,000,000 residents live in renting households. Second, approximately 80 percent of people that own their home carry one or more mortgages. What is the difference between owning and renting?

Argument #5 – It is only slightly more expensive to own as opposed to renting.

Again, for 2005 the monthly cost for a home owner was $1,919 while the median renter carried a monthly housing cost of $918. Owning a home, as opposed to renting is 109 percent more expensive in Los Angeles County. Of course owning a home is always going to be more expensive given maintenance cost, tax benefits, and the desire to own your proper place. But something has seriously gotten out of whack here. Keep in mind some in the housing industry would like to pinpoint data for Beverly Hills, Santa Monica, or other cities that clearly do not house the majority of the 10,000,000 residents of Los Angeles County. Yet we have an overall median for the county of $547,500. Los Angeles County has 88 cities, all which are overpriced by any fundamental economic measures. Not overpriced by 10 or 15 percent but we are looking at a bubble that has inflated prices by 50+ percent in many cities. Let us revisit those home owners that own their home outright shall we?

Argument #6 – When you own your home outright, you no longer have to worry about any further payments.

As you can see from above even the untouchables, those who have paid off their mortgages completely still have to pay something. In fact, in 2005 with approximately a $400 median monthly payment, they are carrying half the amount of a median renter. Given that this is a very tiny sliver of the market it is interesting to break some of the myths flying around Los Angeles.

Conclusion

We’ve seen countless articles hitting the mainstream media regarding the mortgage debacle. Yet the mainstream media paints in large strokes. That is, it is hard for them to devote a 5 page in depth analysis on one specific market. That is the implication behind broadcasting – you try to reach a broad audience. However, when we examine the demographics under a magnifying class for Los Angeles County, we realize that there is only one reason behind the current market prices and that is massive speculation in the form of a housing bubble. Population, income, growth, and every other major fundamental factor does not offer an explanation for the current prices. Take a minute and look at the below chart:

Do not make the mistake of seeing this as only an economic chart. Behind this data, 7 years of dreams and hopes built on the back of real estate play out like a novel. In this chart we see the birth of shows such as Flip this House, Property Ladder, Flipping Out, Real Estate Pros, and of course the Apprentice where 20 to 50 percent of the contestants made their small fortune in real estate depending on the season. In the chart is also the story of new industries and high paying professions. The number of California Real Estate Agents jumped in tandem with the above chart. Mortgage brokers, construction, hedge funds, and all things real estate seemed invulnerable to any market woes. This was an unstoppable train with an endless supply of steam. As we sit at the apex, wondering how this decade long housing bull market will end, many have been conditioned to know only one thing about housing. And that is real estate never goes down. As this speculative game winds down, there is an eerie calm engulfing the market.

Keep in mind the data we are digesting regarding sales and prices is still 1 to 2 months delayed since escrow filings and closing data lag the current market information we are seeing. Which means data we are digesting today was immune to the recent ugly stick beating the mortgage market underwent. Logically it follows that any future data will be worse because of the now dwindling credit markets. If we are to revert to market fundamentals, housing in Los Angeles County has a long way to go down. I believe that running the numbers for Las Vegas, Phoenix, Miami, Boston, or Denver would yield the same fundamental analysis, and that is housing is overpriced no matter how you dissect the data.

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The History of the Los Angeles County Housing Bubble (2000 – 2007). Proudly a County of a Renting Majority.

Take a long and hard look at the chart above. Sometimes a picture is worth a thousand words or in this case, worth half a million. Many would be housing buyers have felt the angst of never being able to afford a home in Southern California. Anyone sitting on the sidelines for the past seven years has seen the largest historical run-up in housing and probably felt helpless at each consecutive jump in prices. “Housing has gone up 20 percent year over year,” became a monthly media sound bite embedded into the psyche of any California resident. We start out with a median price of $200,000 seven years ago and currently see median home prices of $520,000 in Los Angeles County. This double-digit year over year appreciation started in February of 2001 and didn’t end until April of 2006. That means housing never dropped below 10 percent yearly gains, (sometimes reaching gains of 26.6 percent) for 5 years and 2 months.

Even as we are facing massive meltdowns in the subprime and now prime mortgage arenas, why in the 30 mile zone world is LA housing still going up? Welcome to the world of shady statistics, exotic mortgages, and good old fashion greed.

Lies, Damned Lies, and Statistics

Los Angeles housing has always been relatively expensive in comparison to the rest of the nation. Let me define the word always. When I say always, I mean from 1970 and beyond. Similar to real estate agents saying real estate always goes up. Yet something happened in the last decade that sent housing prices in the Southland into the Al Gore stratosphere. I remember reading a book by Robert Allen called Nothing Down and thought to myself as I read it many years ago, “this sounds fantastic but this is relegated to the late night infomercial circuit with tanned gurus in Hawaiian shirts pimping real estate seminars at 2AM.” Go figure that a few years later, nothing down went mainstream. Not only was nothing down mainstream it became a staple of the housing bubble.

Lending standards took a major dose of laxatives and let out a major wave of dirty mortgages. Hence, the name “toxic” loans we now hear. At least that makes sense because these mortgage products were full of you know what. In addition, all the stats used by mortgage lenders incorporated skewed statistics and made up incomes. If you think stated income is ridiculous then you have not lived in Los Angeles. Stated income was the future baby! Why does the bank need to know how much I make? Why are they nosy and trying to dig into my business? When I say I make $500,000 I really mean it even though I have no idea where my W2s are. I’m not even sure if I work but we’ll let Wall Street worry about that. It was an implicit agreement of you sign here, and we’ll put you into this over inflated home. If people on the streets were conjuring up their incomes, what about the companies providing these people the mortgages? Well now, we are taking a deeper look at what really went on and opening the Christmas gift from hell. It turns out that Nothing Down doesn’t bode well in the mortgage game. Why is that? People will generally fight like riled up hyenas if they have skin in the game. If you had to put 20 percent down on a piece of real estate you will do all you can before having the house foreclosed. However, with zero down most folks are more than happy to walk away from their massive mortgage obligations. Heck, the lending institutions are doing this right now in their 11^th hour. We all know that every large metro area is declining and facing massive jumps in foreclosures.

Wacky Median is Still Going Up

No negative housing information seems to make a dent on the resilient LA median price index. The prices keep going up. Again, the devil is in the details. Sales volume has dropped off a cliff and has been in free fall mode for over a year. Yet a home that doesn’t sell cannot be factored into the overall sales data. Therefore, what we see is homes in prime areas such as Beverly Hills, Brentwood, Santa Monica, and Palos Verdes skew prices even higher because these places are still selling. Lower priced homes aren’t selling therefore they are not included in the overall sample size. And the sales sample size is shrinking as we speak.

Then we have homeowners addicted to five years of double-digit gains unable to reconcile that they can no longer sell their home for peak prices. They feel entitled to peak prices because they say so. Can it be that housing prices were inflated by exotic mortgages and general greed? Why else would people be so eager to jump into a home that they could rent for half the price? The new paradigm of housing included double-digit appreciation until the end of time. Well the end of the time arrived in summer 2007.

Why Did Los Angeles Go Up and Other Areas Did not?

This may come as a shock to you but we have sun here in Southern California. Actually, we own the exclusive rights to it. Therefore, prospective buyers had to pay a sunshine tax to live here. Florida has sun too hence their run-up in real estate. This may seem simplistic but most metro areas in the US are now overpriced. Some are overpriced by 10 percent and some are overpriced by 50 percent. LA wasn’t the only place with a mad run-up in prices.

We also have a very mobile population. The majority of folks spend a good portion of their day on the 5, 10, 210, 405, or any other freeway you can think of. A very small portion of people see housing as a long-term investment here. The general culture does not think of buying a home, raising a family, and retiring all in one place. In fact, we have a culture where you play the Russian matryoshka doll game; you know where each little doll is nestled in a larger doll? Well people purchase homes here to trade up. Each consecutive purchase brings you a larger home with an equally larger mortgage. Each added member to the family is reason to purchase a larger car on a new lease. This is how many families operate in the Southland.

Yet the squeeze is being put on the middle-class of the state. Rising gas prices, car costs, healthcare, food, utilities, and housing all cut into the operating budget of the family. Like the couple earning $130,000 and lost their home to foreclosure, many families are realizing they are suffocating on servicing their debt. The grim fact may hit many families like a ton of bricks that they were using credit to stay afloat. Now that credit is becoming more expensive to obtain, they are realizing the true nature of their spending habits. Many families are also feeling the pinch of a declining dollar. I’m not sure if John and Susie Public are too concerned about a falling dollar or inflation. You just hear them ramble about, “damn, prices are always going up!” I’m hoping that people start asking the next question and look into the reason prices are going up. And many folks are realizing that their paycheck isn’t keeping up with the cost of living. Slowly the public is being taxed via inflation and a falling dollar. The only person running for president that I’ve heard mention anything about these economic issues is Ron Paul.

Los Angeles is a different beast. We have 88 cities in the county. We have 10,000,000+ people living in a relatively small area. There are 3,339,763 housing units. The median income for a household in the county is $42,189, and the median income for a family is $46,452. In addition, the homeownership rate is 47.9 percent. So in fact, Los Angeles County has a renting majority population. But if you want to own, we have some wonderful Real Homes of Genius eager for a new owner.

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Housing Minsky Moment: 3 Factors. Prime Contagion, Record Foreclosures, and Publicity.

This week witnessed the final nail in the housing bubble coffin. We have reached what seems to be the Minsky moment for the housing market. Named after the US economist Hyman Minsky, the idea holds that over long periods of economic stability leverage tends to grow in predictable stages. This economic stability leads to a fertile environment sprouting trunks of easy credit access with little perceived risk. However, as the growth continues there seems to be a movement from moderate lending, risky lending, and finally outright irresponsible Ponzi like lending. With 100+ subprime lenders imploding on their own convoluted mortgages, the housing market is like a fish out of water gasping for life and clearly in the last stage of the lending cycle. The first event occurred on Tuesday when the gargantuan mortgage lender, Countrywide Financial announced dismal second quarter results. They announced that second quarter profits shrank by a third due to growing delinquencies and get this, creditworthy borrowers defaulting. The talk early in the year about subprime being contained turns out to be an absolute ruse. Now we have prime mortgage borrowers swept up in the housing slump. Yet the bigger news came from Countrywide’s CEO Mozilo, saying that he does not see housing recovering until 2009. Imagine that.

Then we have the inability of the mainstream news media to inform us regarding critical issues. Instead, we have the morning news plastered with Lohan up to her usual debauchery and athletes gone wild. As a matter of fact, while California set a new record in the foreclosure department, the mainstream media felt this only warranted a footnote at the end of the newscast. We don’t hear much about Iraq anymore. And what of the collapsing dollar? I think I hear Nero Fiddling while something burns.

In this article we’ll examine three critical factors that propelled housing into its public Minsky moment; prime contagion, record number of foreclosures, and negative publicity.

Prime Contagion

Mozilo likened the housing market to a gigantic ship needing to turn in the ocean. It will take time was his underlying point. I like to think of the housing market more like a NASA mortgage rocket with no turning back. Have you ever tried turning back a rocket-propelled vessel? His statement seems to offer some hope that housing will return even though he unloaded millions in his company stock. Maybe he forgot to mention that the ship he was referencing was the Titanic. Either way, housing is passed the shaky ground stage. I’ve shown countless examples in our Real Homes of Genius series that clearly highlights an outrageous bubble housing psychology. We also discussed a few months back the subprime implosion as credit suddenly tightened and subprime lenders started dropping like moths heading toward the light. In fact, I felt this was the watershed event and would set the tone for the summer.

Yet glorious housing bull pundits at this time championed the amazing summer rebound and the silo mentality of containing the subprime debacle. Ignoring rising inventory, $1 trillion in mortgage resets, and a stagnant market they decided to jump on the housing Pollyanna bandwagon. After all, this summer was housing's last shot to demonstrate continued bubble resilience. Unfortunately, this summer is only the beginning of a very difficult downturn in the housing market and most likely the overall economy. The market has ballooned beyond any economic model of sustainability. I discussed the pseudo $5 trillion in wealth created by this housing bubble and all credit linked to it. How much of this wealth will disappear is yet to be seen.

Yet now we are realizing that prime loans are also taking a hit. No longer is this implosion contained to one segment of the housing market. For a large part, we have this entitlement mentality of folks thinking their homes are worth more than what they truly are. Say you bought in 1997 for $200,000. Now your home is worth $600,000. This is a very typical scenario in California. You’d feel $400,000 richer simply by living in your home. And many folks had this wealth effect. In fact, they converted their homes into ATM machines and used mortgage equity withdrawals to prop the economy. Unfortunately, many folks are now realizing that some appraisals may be bubblicious in their estimates. Say this given home drops to $400,000 in a few years. Nothing is lost, in fact they are “up” $200,000 but the psychology and perceived loss does make people feel poorer. When people feel poorer, they spend less. In our economy based on 70 percent consumption, that equals a recession. Clearly, this is where we are heading. We have scheduled mortgage adjustments set for 2008 and 2009 to the tune of approximately $2 trillion:

This housing market followed no economic rules and like the Minsky moments of past, greed and irresponsible credit will once again collapse another bubble. Chalk it up to history repeating itself. Which leads us to the historical moment set in California.

Record Foreclosures

Southern California has reached a record number of foreclosures. That is correct, we are swimming in uncharted territory. Notice of defaults are quickly approaching record territory as well. To be exact we are off by 102 homes, which by the time this article is posted, we will surpass. So we can say that we have record numbers of Notice of Defaults and foreclosures. Take a look at the chart below and see if you can spot the trend in California:

The interesting tidbit of this information is NODs are turning over and going into foreclosure. If anything, you can consider the NODs as a canary in the mine; and if we are to read the data correctly we are in for some massive foreclosures. As stated by DataQuick:

“Most of the loans that went into default last quarter were originated between July 2005 and August 2006. The median age was 16 months. Loan originations peaked in August 2005. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8% in May 2005 and has since fallen.”

Now if you examine the rate reset chart in conjunction with the foreclosure data, there really isn’t anything stopping this train. Over 75 percent of loans originated in August 2005 were adjustabl