The problem is going to fully expose itself like a blossoming orchid when lenders suddenly send out that first recast anniversary payment only to receive a cold shoulder once day 31 arrives. The fact that California has a whopping $300 billion in pay option ARMs that will recast over the next few years is simply going to put a cap in any bottom talk for a long time. Keep in mind in the entire United States there are $653,502,658,632 in Alt-A loans out there. The vast majority of these pay option ARMs fall in this category. So California by itself has nearly half of the entire nominal amount of these toxic sludge mortgages that make subprime loans look conservative.
Let us not forget that there are still subprime loans out there. California still has over 465,000 subprime loans “active” as of June of 2008. So we are not out of the woods on that one. If the housing market correction has caused housing prices to drop by 38% in California in one year simply with the majority of the subprime problems, can you imagine when the marriage of subprime and pay option ARMs confront us at the same time later this year and throughout 2009?
With unemployment peaking near 11 %, there is no way housing bottom has reached. Where do people have the money to purchase houses?
I am guessing recovery can be based on unemployment coming down from double digits and purchasing a house is to be weighed with the current rent prices.
i mean Monthly mortgage payments/ rent ratio
but if mortgage is high, buying may be postponed because housing market is going go down another 20% unless unemployment is goes down and banks bailed out again.