A Stitch in Haste

It only took twenty-one months, but my (not-so-dire) warnings about a mortgage bubble have finally proven correct:

Late payments on U.S. mortgages increased in the fourth quarter to their highest level in three and a half years and foreclosures rose, driven by subprime borrowers with weak credit, the Mortgage Bankers Association said on Tuesday.
...
Delinquencies rose for all loan types but were largest for subprime adjustable-rate loans that reset at higher interest rates, the industry trade group said in its quarterly National Delinquency Survey.
...
The percentage of loans in the foreclosure process rose to 1.19 percent of all loans outstanding in the fourth quarter to the highest level in nearly three years.

It's about time.

This is certainly not good news, and yesterday's stock market decline was principally caused by it.

Having said that, remember: The mortgage market is not the housing market, and is especially not the stock market or the economy. Now is not a good time to own stock in a subprime lender, to be sure. Or a consumer finance stock or maybe even a credit card stock or a bank stock. But does that mean that your home is about to lose 30% of its value or that an immediate nationwide recession is inevitable? Of course not.

Some people have larger mortgages than others. Some have no mortgage at all. Some people own lots of mortgage lender stock, many own none at all. The S&P 500 contains financial stocks, but not exclusively. Housing is part of the national economy, but only part.

I remain confident that several more shoes will drop, mainly because the yield curve is unsustainably low and flat (of course, that's exactly what I was saying a year ago — go figure). But catastrophe for some is not catastrophe for all. As is always the case in a dynamic capitalist economy: some will do very very well, some will do very very poorly. Most will do just fine.