This much is known. Foreclosure rates fell from October to November. Perhaps the mortgage mess has found a bottom. The risks are still present, but the market may have found some footing, for now. According to Reuters "about $500 billion in adjustable-rate mortgages are due to reset at higher levels in 2008, according to JPMorgan"
It may be counterintuitive to think that the fourth quarter of this year could be the trough for people having to turn their homes back to banks. Not with fuel prices rising and home values still moving down.
The consumer may have out-smarted economists. He may have cut back on what he could to save his home. Discretionary spending may be going to ground. Recent figures on holiday sales show that households with incomes under $50,000 are not spending much more on Christmas this year than they did last. The growth in shopping is coming from those who make over $100,000. The low end of the housing market, predominantly subprime, may yet be peopled by those who can cut just enough out of daily expenses to save their homes.
An improvement in foreclosures may have the odd effect of hurting the economy elsewhere. Those saving their homes may delay buying cars and cut credit card spending. This could lead to a boycott in consumer activity that may help the home and mortgage markets but disable GDP elsewhere.
Keep the house or skip Christmas. Not much of a choice.
Douglas A. McIntyre
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