Thursday, July 26, 2007

National: The Credit Window is Now Closed

"The credit window is now closed," writes strategist Barry Ritholtz in his blog, and the "multi-engine plane" that is the market has lost one of its sources of power ("liquidity - what is occurring today is a full blown repricing of the liquidity spigot slowly turning off").

As for the U.S. housing market, economist Mark Zandi expects a lot more pain, but not a recession. Here are some highlights of his forecast, based on a study using anonymous data collected by consumer credit agency Equifax:
  1. Home prices will fall 10% from the peak nationally, more in the bubble regions in California, Florida, Nevada, Arizona and Washington, D.C.
  2. Home sales could bottom later this year, home construction could bottom early next year, and house prices could bottom late next year. It'll be 2010 before the housing market could be termed "normal."
  3. About 17% of total mortgage debt is at risk, totaling about $2.5 trillion in subprime, Alt-A and jumbo debt. About $1.4 trillion is at serious risk of default. Investors will lose about $113 billion as $460 billion worth of mortgages default.
  4. About 20% of the subprime loans written in the last half of 2006 will fail, with the peak of the defaults not coming until 2011. A "significant number" of these borrowers never made a single payment.
  5. More than 2.5 million first mortgages will default this year and next year. Subprime borrowers will experience significant financial distress.
  6. The U.S. economy will grow less than 3% annualized through the middle of 2009. A healthy job market should prevent a recession, although the jobless rate will likely rise to 5% from 4.5% by the end of the year.
  7. Consumer spending has already slowed and will slow further.
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