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You're clearly correct that this would be one other thing that could theoretically tank the market, but I disagree when you say "Many people made an investment
by awillen 4y ago
You're clearly correct that this would be one other thing that could theoretically tank the market, but I disagree when you say "Many people made an investment decision on the assumption that their equity will only increase and are over leveraged."
The percentage of ARMs is much, much lower than it was during the financial crisis, so there's no adjustment coming that'll force people who can't refinance to sell, as was the case then. Lending standards are also much tighter now than they were then - the vast majority of people can afford to make their mortgage payments.
That means that in order for there to be large-scale repossessions, we'd have to have significant job losses. That's certainly not impossible, but employment still looks like the one part of the economy that's not showing a lot of weakness.
- comte7092 4y agoI don’t foresee a massive surge in unemployment, but the Bay Area is particularly expose to tech jobs and salaries, so an acute cut in the cost structure of a handful of large tech firms could have a huge impact on the local housing market.
- marcus0x62 4y agoSure, and as Mike Tyson once said, everyone has a plan, until they get punched in the mouth. Affordability when the current in-force loans were written was deemed to be much better. Tech is in a huge employment bubble right now. The exorbitant pay packages that engineers at FAANG companies are getting simply didn’t exist 15 years ago. A reversion to the mean, especially one triggered by a tightening business climate, is more likely than not, in my opinion. How these loans hold up if tech pay packages decline — that’s something that nobody knows.