Alt-A - the next Subprime

In terms of predictions, I usually focus upon medium-long term trends rather than short ones. Here's a prediction - the US housing market will undergo yet another collapse in about 12 months time.

It'd be lovely if I had the smarts to basically explain this, but the simple fact is that I'm merely reporting what Tanta at Calculated Risk has predicted - which means that if I get this prediction right it's merely because she got it right first.

I'm not exactly certain of the financial ideas here, but it seems as though the majority of "Alt-A" home loans - those which are superior to subprime but are still risky - are going to have their rates reset beginning in March 2009 and then climbing rapidly in Q4 2009.

In other words, there's a whole heap of people who will probably have their rates increased and who cannot afford it.

This assumes, of course, that the "credit crunch" extends another 12 months or more, which is highly likely given the current recessionary conditions. This means that the downturn is going to be a long one.

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