More on Housing Prices

This is a long analysis of the current housing market by Gary Shilling (from Mauldin's Outside the Box Letter). I found much of the data interesting, though I have yet to form a definitive prediction on future prices (I lean towards the idea that in three years prices will be lower than they are now). In particular, this data was new to me:

The subprime mortgage market, into which many lenders have rushed as they strain for yields, is also showing strains. The rise in delinquencies is actually worse than it appears. Delinquencies for new subprime ARMs in the first nine months of 2005 were 6.2% compared with 3.7% for the same period in 2004. The more recent borrowers have proved to be the worst re-payers. And since many of these ARMs will adjust up in several years, even a flat house price pattern will spike delinquencies since refinancings won't work without price appreciation for many. Note that among 2003 subprime mortgages with ARMs that reset up after two years, delinquencies leaped from 10.2% right before resets to 16.6% six months later. Note also that there were about $220 billion in two-year ARMS in 2003 but $440 billion in 2005.

If you're interested in the subject, I recommend reading the whole piece.