on Dec 4th, 2007foreclosure falling house prices
Foreclosures caused by falling house prices?
Really?
That’s what Ben Jones writes on the housing bubble blog. Go read the whole post…I’ll excerpt some highlights.
The Boston Globe reports from Massachusetts. “The recent spike in home foreclosures in Massachusetts is caused primarily by falling housing prices, and not by rising mortgage payments, according to research released yesterday by the Federal Reserve Bank of Boston. The contrarian report suggests the common understanding of the foreclosure crisis is somewhat mistaken. Unaffordable loans don’t cause foreclosures directly.”
<snip>
“Conversely, when prices started falling, people struggling to make payments had less incentive to find the money. Housing price movement ‘plays a dominant role in generating foreclosures,’ the report concluded.”
“One implication of the report is that current attempts by local and federal officials to help borrowers may be ineffective.”
This is critical and that’s why I’m bringing it up here.
It says all you need to know about the future of the housing market.
It has been my contention that the housing bubble has been caused by overly loose money provided by the Federal Reserve and then other central banks in response to Y2K and the stock market crash of 2000.
As money became easier, people who buy houses based upon the monthly payment found they could afford a higher priced house.
This led to more speculative buying as prices started going up. Credit became easier as lenders stopped lending their own depositors’ money and started just originating and selling off the loans. Foreign buyers were eager to get these mortgages that were repackaged as super duper secure investments.
Now, we are in for the Great Unwind. No matter what happens, housing prices will fall and fall in “real” terms. Inflation is higher than the government admits, and they will try to maintain high inflation while fooling people that inflation is low. Then hopefully wages will rise and housing prices won’t have crashed.
But no matter what, I expect the Great Unwind to be very difficult for homeowners. Foreclosure falling home prices all go together for more foreclosure and lower prices and then more selling and more lower prices.
It makes sense — and if you want to get out, sell now. Don’t wait!
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