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Real estate’s report card worsens

Guest perspective: Adjustable-rate resets will cause problems for builders

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To effectively run a home-building company today, executives need to be well versed in complicated economic and financial issues because these issues impact the decisions you need to make today. Subprime is a Leading Indicator for Prime - Do not downplay the risk to your business of the front-page news in the subprime market. The real reason for the stress in subprime has to do with flat home prices and rising adjustable interest rates, which are impacting all home buyers who have bought in the last 24 months. The stress is currently most obvious in subprime because those loans tend to reset after two years, versus three-plus years for other loans, and those borrowers are more likely to default. The primary housing market will have significantly more stress 12 months from now than it has today unless mortgage rates fall dramatically or home-price appreciation returns. Why? Because an adjustable-rate loan made in early 2005 will result in a 30 percent-plus increase in the borrower's m...