Today's Local Real Estate News: "Don't expect a big improvement until 2011."

The Palm Beach Post quotes Jack McCabe on the future of housing:

“Don't expect a big improvement until 2011, warns Jack McCabe of McCabe Consulting in Deerfield Beach.”

“Billions of dollars worth of adjustable-rate mortgages are scheduled to reset starting in October and running through April. That means homeowners who took out adjustable rate mortgages will see their interest rates climb, in some cases 3 percentage points higher.”

“So as 2007 turns into 2008, more homeowners will be trapped by rising housing costs - and lower appreciation. That means more foreclosures are inevitable, McCabe said.”

“And don't look to the Federal Reserve for help. Recent interest rate cuts will help credit card borrowers. But the cuts won't do much good for homeowners. McCabe said most adjustable-rate mortgages are tied to the higher-rate Libor, the London interbank offered rate, not U.S. T-bills.”

In an editorial, The Miami Herald says it hopes subprime mortgages will be allowed to survive:

“If there's a silver lining in the ugly cloud that the subprime mortgage mess is casting on the economy, it is this: Congress, the Federal Reserve and the regulatory agencies are waking up from a prolonged slumber and belatedly are riding to the rescue. But don't start cheering just yet. Things will almost surely get worse before they get better, and there's no guarantee that the lawmakers and regulators who played the role of enablers in this crisis can find the right fix. For thousands of homeowners facing foreclosure, the cavalry is already too late.”

“The foreclosure rate in August jumped 36 percent from the level in July, with Florida recording one of the highest rates in the nation. A better measure of the scope of the problem: Foreclosure filings went up by 115 percent from August of 2006 to August of 2007. Florida now has one foreclosure filing for every 243 households, creating a ripple effect that leads to headlines like the one that appeared on Page One of this newspaper on Wednesday: ‘S. Florida home sales keep sliding.’”

“The downward trend is unlikely to turn around anytime soon. With more homeowners unable to pay their mortgages, more ''for sale'' signs are popping up everywhere. Lenders are being more cautious -- a classic case of closing the barn door after the horse has bolted. That, in turn, means fewer buyers can afford to purchase new homes. Even real-estate speculators are hedging their bets. To wit: New condos are going up for auction and not getting enough reasonable offers because the smart money says prices will go down even further.”

“So what's to be done?”

“Congress has to shore up the safety net that has protected homeowners and the housing market for decades, stretching back to the era of the New Deal.”

“Regulators have to increase oversight; they've been ducking their responsibilities for too long.”

“The subprime market is a good deal for many worthy borrowers. It introduces a measure of democratization into the system. It should be allowed to to survive. At present, only a fifth of all subprime mortgages are at risk of default. This is still too many. But it would be unfair to penalize potential beneficiaries because of the mistakes of a relative few. This is why regulation is so important -- the playing field has to be level, and the rules have to be clear and fair.”

Is it any coincidence that the Miami Herald is calling for Congress to “shore up the safety net” (AKA bailout) just before they report that two huge banks, UBS and Citigroup, plan to write off billions in bad loans:

Citigroup Inc. and UBS AG warned they suffered significant loan-related losses in the third quarter, becoming the latest and biggest banks to reveal huge ill effects from the spike in mortgage defaults and freeze-up in the credit markets.

Citigroup estimated third-quarter profit will decline about 60 percent to some $2.2 billion. The largest U.S. bank said it will write down about $1.4 billion of its $57 billion portfolio of highly leveraged loans, lose about $1.3 billion on the value of securities backed by subprime loans, and lose $600 million in fixed-income credit trading. It also said consumer credit costs rose $2.6 billion, mostly due to a boost in loan-loss reserves.

Switzerland-based UBS also anticipates results to improve, after writing down $3.4 billion in the third quarter because of problems in U.S. subprime mortgages. For the first time in nine years UBS will post a pretax loss, which the bank guesses will be about $690 million.