Tuesday, October 03, 2006

FB's Anonymous anyone?

Notices of Default are up 250% in San Diego and about 45,000 properties in some stage of foreclosure in California. These may not simply be people who bought in the last year. A lot of people took a HELOC and sucked out every bit of "paper gain" that the bubble gave them. These loans have to be paid back of course, or the "lendee" will lose their home.

Here's a couple charts for ya. These are form the article "Lenders gone wild".

This is significant in a couple ways - and I'm not talking about the shocking #'s of stupid loans, I'm talking about the impact of any foreclosure. First, anyone who loses there home adds to Supply AND the inertia of falling prices. Second, since the owner's credit is ruined, they will not be part of Demand for quite a while. Third, and most importantly, it shows that price decreases will not be limited to places where there was excessive building. Demand is detached from Supply.

I could say a bunch of stuff about people seeing their homes as investments and taking out $$$ like it's an ATM to finance shameless lifestyle purchases, but you already know that. It's probably more insightful to recognize that a lot of people pulled $$$ out of their homes to buy "investment" properties, in effect, leveraging their equity to make more $$$. It's important to realize that leveraging works both ways - it can work for you AND/OR against you.


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