Army of Zombies

I always get suspicious when a point of view is supported with antecdotal stories, but this makes me think that Vox is right about the real estate bubble being ready to burst.

When the market needs support like this to keep going, I wonder how long it's been dead.

This unusual market action is not an isolated case. Consumer reports most recent issue states that over half the recent mortgages in CA and AR (or was in NV?) are unconventional interest only mortgages. Why? So people who can't qualify to buy a house can still buy a house.

If a person/family doesn't qualify to buy a house under one system, reevaluating them under a different system that shows them able to make the first years payments should raise some red flags. This system sounds like some NEA testing program where all students get an "A" so no ones self esteem is harmed. Everyone is happy now, but later when the real world hits, that "A" won't mean diddly squat if you can't read, write, or do simple math.

Same goes for houses. Getting a house today might make you feel good, but what happens when the rate goes up and you can't affort it? Same thing that will happen when your boss realizes you can't read or put the right number of cheeseburgers in the bag. You'll be gone.

Interest Only is being sold to naive buyers. They either aren't being told that it is an ARM where the rate will change at a later date in years or more. If the rates go up, so does your payment. Also at this time, you start paying on you principle. That's a double whammy that most people aren't expecting. In the Consumers Report article their example, I'm sure was worst case, but the initial payment of ~800$ went to over ~1,800$. Yep, it more than doubled.

I've always had a problem with realators. They act like they are your friend, but really want you to buy the biggest house they can sell you. The larger the house you buy, the more money they make.

I doubt that realators are warning their clients about the pending financial problems with the new unconventional mortgages that are putting money in their pockets. If the do tell their customers, I bet they conclude their sales pitch with a line like "But don't you plan to be making more money by then?" What guy is going to say "No" to that. We are all hard working optimists. Of course we'll be making more money, but it'll already be spent.

So, if the market hasn't tanked in the next three years, it'll get hit by a wave of forclosures like an army of zombies. Big dead houses everywhere. The current owners will have no equity to put into another house. What will happen to property values then?

Maybe the Chinese will buy them.

A conventional loan has something like $1.59 out of the first $1,000 payment going to principle. If you can't afford less than $2/month on a conventional loan, there has to be something really fishy on a loan that can put you in the same house.