This is a great article on the U.S. sub-prime loan sector although it focuses on total nuclear destruction scenarios.

Read it.

Mortgages requiring little or no documentation became known colloquially as ” liar loans.” An April 2006 report by the Mortgage Asset Research Institute, a consulting concern in Reston, Va., analyzed 100 loans in which the borrowers merely stated their incomes, and then looked at documents those borrowers had filed with the I.R.S. The resulting differences were significant: in 90 percent of loans, borrowers overstated their incomes 5 percent or more. But in almost 60 percent of cases, borrowers inflated their incomes by more than half.

I expect to see foreclosures take off in the second half of 2007.
If the inventory of Arizona homes for sale declines until summer, the market should be able to handle the “forced” increase in inventory from foreclosures.

I doubt the inventory increase from foreclosures in fall 2007 and the following winter and spring will be as large as the increase seen from summer 2005 to summer 2006. That was when investors stopped investing and started selling their properties

The market is still working through that “investor overhang” of homes. But at least the number of homes hitting the market since last summer is significantly less than the previous 12 months, so the investor overhand is not getting larger anymore, it’s getting smaller.

As long as mortgage money keeps flowing to qualified borrowers, the Arizona real estate industry should do fine.