Coming To A Neighborhood Near You

Our weekly reminder about the sputtering real estate market, courtesy of the Boston Globe (01.11.06):

"Squeezed by rising interest rates, homeowners who stretched their finances to buy properties while the market was hot are scrambling to pay higher monthly payments on adjustable-rate mortgages that were the least expensive option at the time they purchased their homes. 'The bottom line is so many people took the fashionable mortgage rather than the right mortgage,' said Harry Brousaides Jr., president of NorthStar Mortgage Corp. in Westwood." Adjustable-rate loans come home to roost

"Rates have not risen that much yet. But if they continue to rise or if housing values fall sharply, said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance, the current pinch on some homeowners may be the tip of the iceberg." "'People have put problems off by multiple financings and increasing equity,' he said. As a last resort in a rising market, he said, people could sell the house and pay off the loans. But if prices decline, selling a house will not generate enough cash to pay off a loan." "'I have a sense it could get ugly soon,' he said." The booming housing market has been instrumental in driving the economy the last four years. Bloomberg (12.29.05):

"The housing industry accounts for only about 5 percent of the U.S. economy and yet generated half of the growth in this year's first six months and more than half of the private jobs added since 2001, Merrill Lynch & Co. said in an August report." U.S. Economy: Home Resales Fall to Lowest in 8 Months

As it slows, so slows growth. And jobs. It's also been a substantial component of the increase in personal wealth over the last few years. "Price appreciation [of real estate] helped add $5.2 trillion to Americans' balance sheets during the current expansion, or 68 percent of all wealth creation, according to the Federal Reserve."