Home Equity Bubble To Burst

Homeowners, that are PAYING ONLY INTEREST, are in for a shock.

home_equity_bubbleMany people bought homes during the crazy days before the Great Recession.  Many of them have been paying only interest on those mortgages.  Now their payments are about to jump up to include the principal.  Many people will have their house PAYMENT DOUBLE!

The number of homes involved constitutes a bubble as seen in the graph above.

For 2014 about $22 billion worth of homes are involved in home equity loans.  If the average house is $215 thousand, then that means a little over a 100 thousand homes are involved.  That is about 2.5% of the current home sales.

For 2015 the amount of home equity loans involved doubles from the previous year.  Thus over 200 thousand homes could be involved or about 5% of current home sales.

This could result in a lot of foreclosures again if they are not refinanced.

Then with Quantitative Easing ending by January 2015, we could see a return of cash payments to normal levels which could result in a 10% drop in home sales.

The 5% increase in home inventory combined with a 10% drop in buyers could be a double whammy to the housing recovery.  Let’s hope for the best.

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