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I found this nugget is a story out of Dallas. A Freddie Mac economist speaking at the Five Star Mortgage Default Servicing Conference stated that the subprime market fallout is causing home sales to drop by 5 to 10 percent overall. This is a pretty huge number, but I am wondering if it is a segmented market.

Sure there were people buying at the middle and top end of the market with subprime dollars but I can not imagine that they were huge parts of the market except in areas like Florida, the northeast, and California where property values went so high that people felt alternative mortgages were the only way they could get into a property.

My guess is that the subprime dollars have taken historical renters and put them into homes at the lower end of the housing market. When these buyers can not keep up with their mortgage they will revert back to their rental pattern and not be too bothered by the default. To many it may have been an adventure that was really cool but not a change in mentality.

So we can expect to see a glut in smaller inexpensive homes on the market raising inventory numbers and foreclosure numbers but very little movement on the mean sales price of homes sold. Meanwhile, the middle and top end will be stagnant but not face the same pressures of high inventory and foreclosures. The reason, these homes are inhabited by the homeowner class and protecting their credit and borrowing reputation is much more important and renting is not considered a long term option.  

“The subprime market itself will probably depress homes sales by 5 percent to 10 percent this year,” she said.
“Subprime loans accounted for more than half the foreclosures in 2006 and the first half of 2007, and those numbers are rising.”
Many of the subprime mortgages were made to borrowers with poor credit and unverified income. Those loans often start out with low payments and then rise after two or three years. That’s usually when the borrowers have problems meeting the higher monthly payments.
“There is a big wave of them coming this year and next year,” Ms. Cutts said. via the Dallas Morning News

Related posts:

1. The Later The Subprime And Alt-A Loan, The Greater The Default Rate
2. New Home Sales Down 22 Percent From Last Year - Dow Down 300 Points
3. Existing Single-Family Home Sales Drop 2.2 Percent In December - 13 Percent For Year
4. Subprime Loans Lead to High Foreclosure Rate in Massachusetts
5. Minorities Targets of SubPrime Discrimination?