BLAST FROM THE PAST. This June study, “The State of the Nation’s Housing 2006,” is from Harvard University’s Joint Center for Housing Studies.

On the usage of higher risk mortgages.

In just two years, interest-only loans (which defer principal payments for a set number of years) went from relative obscurity to an estimated 20 percent of the dollar value of all loans and 37 percent of adjustable-rate loans originated in 2005. Payment option loans, which let borrowers make minimum payments that are even lower than the interest due on the loan and roll the balance into the amount owed, accounted for nearly 10 percent of last year’s loan originations, but a much smaller share of outstanding loans.

On the risk of a bust.

Fortunately, sharp price declines of five percent or more seldom occur in the absence of severe overbuilding, dramatic employment losses, or a combination of the two

Okay, my question is, what is ‘severe’? Nationally, we may not have had severe overbuilding… but what about in Phoenix? The graph below doesn’t answer the question but it’s interesting.

Check out the appendices.

ADDED. That 10% figure for option loans is really shocking. That loan would be suited for far less than 10% it seems to me.

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