THEME: REAL ESTATE BUBBLE
More dangerous signs of a real estate bubble. Timing of the burst is uncertain, but with the Fed wanting to get back to 3% Fed Funds, all of these over-leveraged 1st time buyers are going to create the great consumer implosion...

NYT article
ANAHEIM, California For years, Ray and Shahrazad Daneshi sought to buy a home, only to be told that they did not earn enough to qualify for a mortgage.

But they recently managed to buy a small house in the shadow of Disneyland for $360,000 - six times their annual income - thanks to a lender who allowed them to borrow the entire value of the home, with no down payment.

"We will not be going to any movies or eating out at restaurants," said Ray Daneshi, a self-employed wedding photographer who came here from Iran in 1988. "But in two years, the house will be worth a lot more, and we will have something to show for it."

The Daneshis' purchase underscores the new, ever-optimistic economics of home buying. A kaleidoscopic array of mortgages for people with little cash or stretched budgets has enabled families of modest incomes to take on debt that once would have been beyond their reach. As long as new home buyers could count on rock-bottom interest rates and housing values were going nowhere but up, this seemed a virtuous circle. But now, with the Federal Reserve expected to embark on a series of interest rate increases starting with its meeting next week, some experts worry that recent first-time buyers could find easy home ownership a lot harder on their wallets, possibly causing housing prices to wobble in some high-price markets. With the Daneshis, for example, rising interest rates on the two adjustable-rate mortgages they took out to buy their house would mean that their monthly payment of $2,500 - already more than half their monthly income - could go up substantially in two years. Ray Daneshi realizes that but is unconcerned.

"Why worry?" he said, adding that he believes rising home prices will help him obtain a better loan deal by then. With interest rates going up, that might be wishful thinking. Many analysts agree that there is no nationwide U.S. housing bubble because prices have climbed only slowly in Midwestern and Southern states even as they have soared on the East and West coasts. Still, if rising interest rates cause housing prices to dip, even slightly, industry officials warn that some new buyers will have no equity in their homes and could choose to walk away from their loans if they run into trouble with payments.

"Thanks to God for finding me a mortgage program that let me buy my own house," Daneshi said.