Posted by: jhamon | June 2, 2009

Green Shoots in Housing?

Chad sent me a presentation from the Investment Strategy Group at Goldman (please, all y’all, keep the data coming).  With our fund launch so close, I haven’t really had a chance to dig into it.  It is fair to say that the tenor of the presentation intimates that a housing bottom may be in and housing may come back stronger than anyone currently believes.  OK.

Like I said, I still need to really dig into the data. 

Nevertheless, I offer this (slightly modified by me) chart from Credit Suisse.  Click on the thumbnail for a bigger image.

Don't Look Back, But Pick-A-Pay is Coming

Don't Look Now, But Pick-A-Pay's Catching Up

One of the most remarkable “innovations” of mid-2000s financial imagineering was the development of the Option ARM or Pick-A-Pay strategy.  In these beauties, the home “owner” could choose to pay interest only and allow negative amortization (loan balance increase).  Because there was a generous negative amortization cap (as much as 125%) on top of inflated appraised values this crop of beauties, like a fine Sonoma cabernet, won’t be ready for a few years yet. 

Note where we are today, and then observe the light yellow and light blue portions of the bars, which represent the total face value of the ARMs and the months (and years) ahead in which they will reset.  The orange line (measured in $USD billions) shows the cumulative total value of the resets through the years.  Note the inexorable climb of resets from $0 in March, 2009 to $1.2 trillion in mid 2012 before any kind of knee is reached.

We are a long way from done.

If someone else has occasion to dig into the Goldman presentation, it’d be great to hear from you.


  1. […] Dr. Housing Bubble works the numbers while maintaining a sort of gallows sense of humor.  A couple weeks back I wrote about how the so-called Pick-A-Pay or Option ARM mortgage bubble is yet to….  Dr HB demonstrates the Option ARM debacle’s imminence in this piece where he considers […]

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