housing bubble?

["Devine, James" <jdevine@xxxxxxx>]

from the NYT (http://query.nytimes.com/mem/tnt.html?tntget=2004/06/24/business/24housing.html&tntemail0): 

>>...Most analysts agree that there is no nationwide housing bubble because housing prices have climbed only slowly in the Midwest and the South, even as they have soared on the East and West Coasts. Still, if rising interest rates cause housing prices to drop, even slightly, industry officials warn that some new buyers will have no equity in their homes and could choose to walk away from their loans if they run into trouble with payments.

"A lot of these loans are dangerous," said Allen Jackson, manager of Bristol Home Loan in Bellflower, Calif., a mortgage broker who specializes in so-called subprime loans, which charge higher interest rates to people unable to qualify for traditional mortgages. "If you have any dip in values, people can just say the heck with it because they don't have any of their own money in the house."

Lenders have aggressively encouraged home buyers to stretch in ways that would have been unimaginable a decade ago. In the new world of flexible mortgage lending, it is possible to buy a $600,000 house with no down payment, and to pay only interest and nothing on the principal for years.

"The financing has changed everything," said Humid Karat, a manager of Tarbell Realty's office in Anaheim. "Ten years ago, if I offered to buy your house with a 100 percent loan, you would have called it 'creative financing' and thought I was crooked. Today, everybody wants a 100 percent loan."

The volume of subprime mortgages, primarily for people with poor credit ratings, has risen sharply, as indicated by securities backed by the mortgages. Such securities soared to a total of $195 billion in 2003 from $17 billion in 1995, according to Inside Mortgage Finance, an industry research firm in Bethesda, Md. Securities backed by unconventional mortgages, like no-money-down loans, climbed to nearly $80 billion from less than $1 billion.

"Underwriting standards have loosened to almost historic levels," said Bill Dallas, a pioneer in no-money-down loans and a board member of the California Mortgage Bankers Association. "Nobody is heeding the yield signs."

Experts say these novel techniques have democratized the access to credit and home ownership. The overall rate of ownership climbed to nearly 69 percent in 2003 from 64 percent in 1994. Home ownership among blacks rose to 48 percent from 42.2 percent. Among Hispanics, it was up to 46.4 percent from 41.1 percent.

But the experts worry that problems may be just over the horizon, especially in markets where housing prices have risen far faster than personal income. Here in Orange County, one of the frothiest markets of all, the median price of a single-family home is $572,000, up 28 percent in the last year alone. <<

jd (who "owns" an over-priced house).