Scary math: More homes, fewer buyers
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The problem with subprime lenders means there will be more homes in an over-supplied market and not as many people who can step in to make purchases. By Les Christie, CNNMoney.com staff writer March 13 2007: 5:01 PM EDT NEW YORK (CNNMoney.com) -- Subprime lenders are already getting crushed, but the impact rising mortgage delinquencies will have on home prices overall is still an open question. At a minimum, it means financing is drying up for those with less-than-perfect credit and that spells fewer home buyers. Current Mortgage Rates Type Overall avgs 30 yr fixed mtg 5.68% 15 yr fixed mtg 5.44% 30 yr fixed jumbo mtg 6.01% 5/1 ARM 5.44% 5/1 jumbo ARM 5.65% Find personalized rates: Video More video The subprime mortgage market is heading for a meltdown with some major lenders defaulting on current financial agreements. CNN's Gerri Willis reports. (March 10) Play video And foreclosed properties will add supply to a housing market that already has too much. "It's going to be a really big deal," says Dean Baker, co-director of the Center for Economic and Policy Research. "[National] inventory is 20 percent higher than last year, vacancy rates have soared and prices are down about 3 percent," he says. "Now, with the tightening of credit, I don't see how prices don't fall another 5, 6 or 7 percent." The tightening of credit could take as many as one million buyers out of the market, says Baker, citing Bear Stearns research. "Even if you cut that in half, say to 400,000 or 500,000, that's huge." Mark Zandi, chief economist for Moody's Economy.com, is also concerned. "I think the subprime problems will take housing activity to a whole other level," he says. Zandi is projecting a doubling of subprime defaults this year to 800,000. "Those homes will go on the market at a discount and will weigh on the market," he says. He also believes that 500,000 fewer Americans will be able to obtain