Expert: Worst of Housing Market Slump Still to Come

Think the housing bubble is bad?
One prominent analyst believes it hasn’t even hit yet.

The author of a highly-regarded investment newsletter says that any real bursting of the U.S. housing bubble it at least two years away, and that the current price and selling setbacks are nothing compared to what may very well happen in 2007 and 2008.

“Homeowners are in denial,” says Karim Rahemtulla, an advisory panelist for Investment U, a newsletter based in Baltimore, Md. “Right now, sellers aren’t selling … They’re still waiting for Santa to deliver their asking price, or close to it.”

And the situation is probably going to get worse.

The many homeowners who have interest-only mortgages, or “teaser-rate” mortgages could see their monthly payments more than double, he contends.

“Interest rates are projected to rise on about $300 billion in adjustable-rate mortgages (ARMs) this year alone. That figure is projected to jump to more than $1 trillion in each of the next two years,” Rahemtulla said.

California, Arizona, Nevada and Florida will be hit particularly hard, he says, and homeowners in these states may not see a 5 percent decline, as experts predict, “but could fall two or three times that number.”

The nation’s home builders, as we’re seeing more and more, are feeling the pinch, too. The bottom of the housing market will be here no sooner than two years, Rahemtulla predicts.

“So while the brokers are upgrading home building stocks,” he says, “and trying to make it seem that the worst is over for housing, my advice is to take the first reasonable offer and count yourself lucky. The housing market bust is not today’s news. It is going to be tomorrow’s.”