Ian Mathias

Almost a year ago today, we forecast the “second wave” of the housing crisis — a flood of option and Alt-A ARMs due to resent in early 2010. This chart was our pièce de résistance:

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Today, we admit we were wrong… the second wave of the housing crisis will likely be even bigger then we expected. Analysts at Credit Susie have updated this cult classic chart. Check it out:

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Now, they’ve done you no favors with this whole color scheme/format change, so here’s the meat of the updated chart: Credit Suisse added an “unsecurtized ARM” category to the coming wave of resets, a move that bumps monthly loan resets up $2-5 billion. Monthly resets are now larger across the board.

What’s more, the “second wave” crisis that was thought to be over in late 2011 is now crashing down well into 2012. According to the group, the swell of option and unsecuritized ARM resets will not only be bigger than the subprime fiasco, but now it’s forecast to last twice as long. Hmmm…

“Housing is typically the sector playing the starring role in most U.S. economic recoveries,” writes the Richebacher Society’s Rob Parenteau, “along with consumer durables like autos, furniture and electronic appliances. Public infrastructure plus cost-cutting capital equipment expenditures will have to pull more of the load this time around, but these factors won’t kick in until next year.

“There is still no sign of life in the mortgage applications for new purchases — at best, they are stabilizing in recent weeks. Refinancing activity remains strong, although off the earlier highs. We conclude this sector, which tends to lead the business sector, and should be a beneficiary of low interest rate policy moves, is, at best, stabilizing of late. That is, stabilization in activity terms, or production and sales — to be sure, home price deflation still reigns, and prime mortgage delinquency and default rates are, consequently, still climbing.” writes the Richebacher Society’s Rob Parenteau, “along with consumer durables like autos, furniture and electronic appliances. Public infrastructure plus cost-cutting capital equipment expenditures will have to pull more of the load this time around, but these factors won’t kick in until next year.

“There is still no sign of life in the mortgage applications for new purchases — at best, they are stabilizing in recent weeks. Refinancing activity remains strong, although off the earlier highs. We conclude this sector, which tends to lead the business sector, and should be a beneficiary of low interest rate policy moves, is, at best, stabilizing of late. That is, stabilization in activity terms, or production and sales — to be sure, home price deflation still reigns, and prime mortgage delinquency and default rates are, consequently, still climbing.”

Ian Mathias

Ian Mathias is the managing editor of Agora Financial's Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report, Agora Financial's flagship income investing advisory.  

Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He's also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he's not at work, you'll probably find Ian on a bicycle, racing up and down the "mountains" of Baltimore County. Ian has a BA from Loyola University in Maryland. 

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