Another ominous warning sign that the housing meltdown has only begun and not ended is the huge drop in the practice of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t have. Now that house prices are falling they are running scared and the worst part is that their bill has increased significantly. To put things into perspective, there was 52% drop in home equity loans in the 3rd quarter; total withdrawals slid from 235.9 billion in the 3rd quarter of 2005 to 113.5 billion in the 3rdquarter of 2006. Expect this to drop even more by the end of this quarter. Things are not getting better as the press and top economists would have you believe they are getting worse.
According to the Mortgage Bankers Association (MBA), late payments and foreclosures rose in the 3rd quarter and this trend is expected to continue as a huge number of adjustable mortgages reset in the next couple of months. When these mortgages reset the monthly payments are going to go up significantly; to make matters worse those that have already fallen behind will pay even higher rates because their credit rating has already fallen.
Expect the number of foreclosures to increase substantially next year; foreclosure rates could hit new 3-6 year highs. The biggest increases will be in the formerly red-hot markets of Florida, New York, Arizona, California, etc. Our advice for over two years for those who had more than one home was to sell one or more; risk-takers were advised to sell their existing homes and rent. The MBA predicts that a whopping 1.1 to 1.5 trillion worth of loans will reset next year; 700 million of this amount will be refinanced and up to 800 million will adjust at less affordable rates. The fireworks are going to begin sometime next year.