Mark Zandi on subprime and foreclosures

Mark Zandi has been one of the more level-headed economists throughout the whole housing bubble inflation and now, its deflation. He spoke with Bloomberg earlier today:

The highlight comes by way of a comment that he expects foreclosures to increase for the next year and a half - through the beginning 2009 - and that any sort of housing rebound will be delayed at least until then.

Writing off housing in 2008 seems to be an increasingly popular thing to do these days after more and more analysts look at the ARM reset charts, the inventory of unsold homes, and souring consumer attitudes toward the once hot real estate market.

Here are a few excerpts.

On the doubling of defaults and foreclosures during the last year and how long foreclosures may continue to rise:

I think all the way through '08 and into '09. Of course it's not going to continue to double all the way through '08, but I think we'll see a rise in foreclosures all the way through the beginning of '09.

On the source of the problems with foreclosures:

There are the subprime loans that are two-year fixed and they turn into adjustable mortgages and they're hitting their first payment reset. The mortgage amount is rising considerably and that's coming at the same time that housing values are falling and lenders are tightening lending standards. It's all coming together at a very bad time.

On how many of the foreclosures are people losing their own homes and how many are investment property:

We don't have definitive data to answer that one way or another but, my sense is that, about a quarter to a third of the mortgages that are in foreclosure are to investors - either short-term flippers or even second home buyers with a longer term horizon. The other two-thirds or three-quarters are people, homeowners, who are just getting caught, unfortunately.

Remember all the criticism that was directed toward Moody's after this report last year when they predicted that home prices would decline considerably? They defined a "crash" as a drop of more than 10 percent and saw that as the probable outcome for 20 areas in their survey.

Here are the top ten on the list from October 5, 2006 -

These numbers don't seem so shocking anymore, in fact, these figures may underestimate the decline given what's happened in the last few months and what is likely to happen over the next year or so.