Sunday, May 21, 2006

Hey, it's only 10%...

If this description fits you, you are in deep trouble:

Homebuyer in the last 5 years; have 2 or more credit cards; shop at Walmart

The FDIC has a very bleak outlook for you. According to the report, you are facing a liquidity squeeze. Rising credit card payments, higher gas prices, higher interest rates on equity refinancing are all forcing you to reduce spending....and that means, for just 10% of you, a recession in 2006-2007.

The report is concerned with the very large percentage of current mortgages tha are sub-prime AND have taken a significant bite out of home equity.

(Note: they are clear that up until 2005, equity was growing faster than refinancing was taking it out primarily because of the hot housing price market, an event 'heading for a soft landing' is how I have heard it portrayed this past week. However, it looks like that sequence has stopped and 2006 will be the first year that equity refinancing will exceed both equity growth AND personal income growth.)

As noted here, foreclosure rates are soaring: 72% increase nationwide over last year.

Last year over 2 million families filed bankruptcy. This year, it is expected that over a 1.2 million families will face foreclosure. These numbers represent less less than 1/2% of our families, so why do I feel nervous?

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