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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.
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May 9, 2008 12:40 PM
An expert's view of the housing crisis
Posted by Bill Kossen
With the nation in an economic slowdown, if not a recession, what's ahead?
The Fed is probably going to stop cutting interest rates, the prices of food and fuel will continue to rise and look for the federal government to craft a bailout of the banks and financial institutions holding a lot of bad mortgages.
That's the prediction of James Gaines, research economist at Texas A&M University's Real Estate Center.
"The Fed's biggest problem is solvency in the financial markets," Gaines said today to journalists gathered in Dallas for a meeting of the National Association of Real Estate Editors.
There's no doubt the nation is in the midst of a severe housing downturn, Gaines said, but this one is different from previous downturns. Those were caused by high interest rates coupled with a slow economy.
This one was caused by lax home-loan standards, which caused frenzied demand for housing as borrowers with shaky financials joined everyone else in buying homes. Now those with adjustable-rate subprime loans are defaulting at high enough rates to shake the mortgage industry and Wall Street to its core.
Although subprime ARMs accounted for just 7 percent of all home loans, they account for 42 percent of all foreclosures, Gaines said. He thinks the worst won't be over until the first quarter of next year; by then the majority of them will have hit the point where their interest rates reset.
In the next year to 18 months, Gaines expects to see a rewrite of most mortgage rules, a rewrite of how Fannie Mae and Freddie Mac (the two major sources of mortgage funds) do loans, and a rewrite of federal bankruptcy rules. Higher inflation and income taxes are also in the cards, he said.
--Elizabeth Rhodes from Dallas
May 9, 08 - 01:00 PM
A time of uncertainty
May 9, 08 - 12:40 PM
An expert's view of the housing crisis
May 8, 08 - 10:00 PM
Seattle's apartment boom expected to cool
May 8, 08 - 09:30 PM
Down-payment assistance controversy
May 8, 08 - 08:50 PM
Home sales to pick up, slowly

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