Like measles, financial distress has a nasty habit of spreading. And the repeated protestations by mortgage originators that the problems in the US sub-prime market will not spread elsewhere could be an expression more of hope than experience. It is hard to see how the US prime market can remain unaffected: with 90-day-plus arrears now running at 25% in the US sub-prime sector it is inevitable that there will be a surge in distressed housing sales. This can mean only one thing for US house price appreciation (HPA), which already suffered its steepest fall in 30 years in the third quarter of 2006 – from 13.2% to 3.4%. There are already signs of...
