by Paul Calhoun

Created on: June 20, 2008   Last Updated: June 24, 2008

The time to invest in financial companies will be a few years in the future. A major cornerstone of financial companies is the housing market. When the housing market bottoms, then the financial companies will bottom. This prediction assumes that we will have washed out the sub-prime loans tragedy. Some market analysts are predicting that this will occur two to three years from now. The I Shares US Real Estate and US Financial indexes provide a good correlation of the dynamics between the two industries. Poweropt provides an excellent tracking of the two indexes so one can track the health of the industries.

Predictions on the health of the housing market by industry experts tell us that there are still major problems. Toll Brothers' CEO Robert Toll, for instance, is not ready to call a housing bottom because the "housing market could still get worse. The market can go down another 10 to 20 percent." Toll adds that the industry is in a depression and any recovery could be "two to three years away". Another major housing player, D.R. Horton, could not call the bottom either, saying the industry could face tough times until 2010.

As long as there is a housing glut, prices will fall further. Housing developers in Southern California are so desperate, for example, that one is offering a "buy one, get one free" deal. Foreclosures are not helping either, soaring 0.99% in first quarter 2008, exceeding previous highs of 0.83% year over year, as the delinquency rate jumped to 6.35% from 5.82% year over year.

It was the sub-prime lending issue that led us out of the "flip it" phase into the foreclosure problem and decline of the housing industry. We have now entered into a high-inflation phase with high energy and food costs. Few are willing to predict how and when we will achieve price stability in the energy and consumers markets. These problems can lengthen the time that we will see the bottom of the housing market.

It should not come as a shock when mountainous Option ARM and Alt-A loans begin resetting and the second leg of the credit crisis begins. ALT-A loans were given to borrowers with credit scores of between 620 and 700, and included the option of interest only loans, option ARMs, and no documentation loans that required little if any documentation for loan approval.

It is estimated that only 60% of Option ARM borrowers make only minimum monthly payments. Others have estimated that this value could be 80%. A loan of $600,000.00 could easily be reset to $750.000.00. Loans such as these, lead to. Inability to pay and foreclosure. These unresolved problems will continue to plague the financial industry for several years. It will be a few years before you should invest in the financial industry.

Learn more about this author, Paul Calhoun.
Click here to send this author comments or questions.