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In the piece Whitney Tilson, a respected financial expert who is credited for predicting the sub prime crisis a year before it started, says that we are only halfway through this mortgage crisis.
Tilson says there is a second wave on the way. We have only been through the sub prime wave. But there are two other exotic ( and toxic) mortgage products that were sold in 2005, 2006, and 2007 called Alt A and Option Arms. The option arms were loans that were sold with low interest "teaser" rates that reset after 1 year, 3, years or 5 years depending on the product. Mr.Tilson predicts that as many as 70% of the option arm loans will default. ( that is not a TYPO, 70%)
Mr. Tilson estimates that the scale of the sub prime crisis is about $1 Tillion. He estimates the Alt- A to be $1 Trillion , And the Option Arms to be $500 Billion. He warns that this crisis will not go away in 6 months to a year. It may very well be 3 to 5 years to work the national real estate market through the excess supply that we have on hand.
In Austin-- We didnt see the same kind of price inflation that California and Florida experienced. So we arent going to see the same type of deflation. In my opinion, prices wont drop by 40% -- and they wont drop by 20% either.
In some areas of Austin where we had 17 to 19% appreciation such as East Austin, we have already seen prices fall by 10% and they may fall by another 10%. As a metro area-- its hard to imagine it happening.
In the multi family market-- a market that was dominated by California investors-- we could very well see a 20% drop in prices. And in the 4-plex market---- we are already well on way to reaching that number.