• Jesse Ledbetter

The bubble is bursting.

Over the summer we put out a series of blogs entitled "Bubble Watch," where we defined the stages of a bubble and watched markets for signs of decline. Nationally, home prices are retreating more than typical for the beginning of fall:

Cities leading the way in decline are Seattle, WA; Las Vegas, NV; San Jose, San Diago, Sacramento, CA; Denver, CO; Phoenix, AZ; Oakland, CA; North Point, FL and Tacoma, WA to round out the top (bottom?) ten. These areas are seeing double-digit annual declines, though not nearly as severe as the declines of the 2008 collapse.


Current projections from pundits predict declines from 5-20% annually for the next year. Zillow and Redfin currently project an increase in home values of approximately 1-2% for the coming year, but this forecast has been revised downwards over the last 6-9 months.


If Richmond inventory remains low, these overall projections may remain true - however, there are pockets of the greater Richmond area that are already experiencing 10% annual declines.


The Single Most Worrying Thing

All of this was to be expected. The housing market has been overheated for the last 2-3 years and needed to cool, so this is part of a healthy market and return to normal. What is NOT healthy is the rise in Adjustable Rate Mortgages.

As home values fall, and interest rates rise, this is the absolute worst recipe to add an increase in ARM loans. Essentially, those with a 5 year ARM may see their interest rate rise over the next 1-2 years (as most predict) while their home value falls (making it impossible to refinance out of the ARM). This is a ticking time bomb for forclosures if the current market forces remain in place for any substantial amount of time.

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