Tuesday, December 06, 2005

That sound you are about to hear is "POP!"

In the U.S. bond market, the housing bubble has burst.

Bonds backed by home loans to the riskiest borrowers, the fastest growing part of the $7.6 trillion mortgage market, have lost about 2.5 percent since September on concern an 18-month rise in interest rates may force more than 150,000 consumers to default.

``We've been hearing about risks of a house price bubble, easy credit and loans to borrowers that really don't qualify, and now in the last couple of months we're starting to see things turn for the worse,'' said Joseph Auth, a bond fund manager who helps oversee $135 billion at Standish Mellon Asset Management in Boston. ``We don't know if it's going to be a hard or soft landing.''

Next year roughly one trillion dollars of ARM mortgages are going to rollover. People have been using their homes as ATM machines for the last few years thanks to the enormous real estate appreciation. Equity? Savings? What are those? Easy credit has been the two dollar whore putting out a dollar day special for the US economy. Considering real estate assets have reached 150% of GDP, maybe it's a good time to buy!


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