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Effect of Subprime Disappearing

LionelLionel
edited May 2007 in Housing Bubble
Interesting quote I plucked off HHB:

"First-time home buyers are more likely to be subprime borrowers. Every purchase of an existing house by a first-time buyer triggers four other sales in the housing market, said Jeffrey Otteau, president of Otteau Valuation Group in East Brunswick, New Jersey."

"'They are largely trade-up purchases,' Otteau said. 'The buyer of the $300,000 house enables the seller of that home to buy a $450,000 house, and up the line until you get to a luxury home. None of that can happen unless the first-time buyer makes the purchase.'"

Comments

  • mike2mike2
    Well, I guess it was a good thing that so many homes were being purchased by investors, flippers and as second homes. That way there's a supply of buyers even if first time homeowners are priced out for the time being.

    On the other hand, the relative lack of subprime borrowers locally could help explain how the homeownership rate in the Seattle area actually managed to drop 1.4% during the boom - investors stepped in to pick up the slack.
  • LionelLionel
    Here's what's happening in San Diego as the subprime disappears:

    --Sales for the month of April were a dismal 2324, a decline of 18% from April 2006 and 44% from 2005. This is the lowest April sales activity in the past 12 years.

    --Pending sales in April of 2341 is an indicator that May sales will be about the same as April. If this holds May will be down about 25% from 2006 and down 40% from 2005.

    --The market below 1600 sq ft has seen the biggest declines, down about 40% from the peak. This has had the effect of breaking the sales chain and affecting sales of larger homes bringing the whole market down. (BMIT: this is the effect of subprime implosion, we'll see this start trickling up)

    Luckily this can't possibly happen to Seattle.

    (Thanks to bubbletracking for the above numbers)
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