Subprime Delivers One-Two Punch Just Like Hurricane Katrina Did

By Susan C. Walker, Elliott Wave International
November 29, 2007

The world is awash in bad news about the subprime mortgage meltdown, just the same way that New Orleans was awash in floodwaters from Hurricane Katrina two summers ago. A few examples:

• The median price for new home drops 13% since last year, the most in 37 years, according to a Census Bureau report on November 29. This due in large part to buyers not being able to get financing now that lenders have tightened their lending standards in response to the subprime debacle.

• Major Wall Street banks write off billions of dollars in subprime-backed securities.

• Dire forecasts estimate that the credit crunch caused by the mortgage problems will cause between $250 billion to $500 billion of losses at banks and brokerages before it's done.

If you want to see how this kind of news looks on a price chart, consider the chart that we published in the latest Elliott Wave Financial Forecast. It shows how confidence in the mortgage market has simply fallen off a cliff. "The ABX Mortgage Indexes are akin to the eerie music that starts to play right before the goriest scenes in a horror movie," write our analysts Steve Hochberg and Pete Kendall. Even prime-rated mortgages (the top line on the chart) seem to have been tainted by the cliff-diving exploits of the subprime and Alt-A mortgage indexes.

In the last part of the SFO article, he asks the key question, Are we at the peak yet? Find out his answer by reading the whole article for yourself.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.