![]() The post-2007 mortgage default data, however, does not support such a conclusion. Second, a number of economists and commentators, including those calling for steep declines in house prices, have, nevertheless, argued that things are different today because of stronger underwriting and better borrower financial conditions and that, therefore, there is little likelihood of mortgage defaults being anything similar to the post-2007 experience. The fact that mortgage rates, which are national, were first very low during the pandemic and since then have now shot up to the highest level in 20 years has both contribut ed to the geographically expansive run-up in house prices and is likely to make the decline similarly so. Unlike in 2007, when it was high house prices that made ho m es unaffordable, today it is both high house prices and high mortgage rates. There are two main points I build on for this purpose.įirst, compared to 2007, house prices are likely to decline across a bigger population across a larger geographic footprint and this decline is likely to be comparable in magnitude to what was experienced in only a few regions in 2007. In this article, my purpose is to form a reasonable estimate of the level of mortgage defaults resulting from the above house price decline. Nevertheless, investors are now reflecting their concern in prices of securities exposed to mortgage credit risk. ![]() Given that a recession is very likely, a national decline of 20% is quite large indeed and yet there has been little discussion to date of its implication for mortgage defaults with The Economist being among the few raising this topic in their recent cover story. ![]() For example, Mark Zandi of Moody’s is calling for a 10% national house price decline with no recession and a 20% decline with a “typical” recession. The national CSI and the purchase only FHFA indices have also shown declines for two months now.Ī growing number of economists are now forecasting house price declines of varying levels. By now, house prices have started to drop with the Case-Shiller Index (CSI) showing declines for three months now in various western metros. In my article on Aug 5, I had said that we are likely to see a major decline in house prices leading to a large number of mortgage defaults. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |