I did a name search of the word “subprime” within several regional newspaper web sites. It appeared a whopping 67 times — in one day. Subprime this, subprime that. It’s hard not to hear subprime in any conversation about real estate these days.
So how bad is the subprime crisis, and what does it mean to those of us here in the north Puget Sound?
Recent reports confirm that while loan delinquencies rose steadily throughout 2006 and 2007, prompting 1.28 million properties to be subject to some of the 2.2 million foreclosure notices in 2007, those filings affect only 1 percent of the nation’s 128 million mortgages. The 2007 total was 79 percent more than 2006, so the trend is and was disturbing. But the total number affected near the end of last year was still barely 1 percent of all mortgages.
In perhaps a signal of what 2008 might portend, these same sources confirm that of the borrowers who had subprime interest-only, payment-option or negative amortization types of loans, more than 25 percent of them were 60 days late on their payments in November 2007. Being late doesn’t guaranty a fire sale of the homes or foreclosure in every case. But it is a sign of concern.
While the suffering of those trying to make higher payments should not be minimized, it’s important to note that 60 percent of American households are renters or own their homes outright. So those 1 percent at risk from subprime loans of one kind or another are less than half of 1 percent of the total households throughout the country. A pretty small portion by all measures.
Trouble could come if interest rates rise and more of the adjustable-rate notes adjust up and create new stresses on homeowners in 2008 and 2009. The number of adjustable-rate mortgages that could potentially be impacted is 3.3 million loans. That assumes a sort of worst-case scenario. But even this big number is only 2.6 percent of American households.
The conclusion is that these numbers are, relative to the size and breadth of the real estate markets nationwide, not likely to overwhelm it. From an economist’s standpoint, one might call the subprime situation a healthy market correction. Healthy, of course, only if you are not directly impacted.
The Puget Sound has a powerful antidote to the subprime bug: stable home values. Other parts of the country are not so fortunate. At some level, even if your monthly income can’t keep up with your loan payments here, you probably have enough equity in your home to sell it and size down to what you can handle. Or make a call to your lender before you get to a default situation and try to work something out.
Rampant foreclosures in our area of the country are not, thankfully, a problem for now, and the subprime loan crisis is more of a news story about trouble in other parts of the country with perhaps the mid- and long-term impact being more disciplined lending practices and maybe a delay for some in stretching into home ownership as a result of that new discipline.
Tom Hoban is CEO of Coast Real Estate Services, a commercial sales, leasing, investment and property management company with offices in Everett, Tacoma, Spokane and Boise, Idaho. He can be reached at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
