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BBC News: America's house price time bomb
dudleyboy
Posts: 765 Forumite
http://news.bbc.co.uk/1/hi/business/7529277.stm
Brace yourselves for the next great depression folks.
With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is expected to sign into law a massive new government intervention designed to slow the slide.
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Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.
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Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes.
Consequently, by walking away from her apartment, Ms Trainer has also walked away from the $200,000 loss on her property.
Her bank gets stuck with that.
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But Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly.
"This is becoming a tsunami of voluntary defaults," Professor Roubini says.
"The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.
"You could have most of the US banking system wiped out, so this is a total disaster."
Which is why it is not just US policymakers who are hoping America's new, multi-billion dollar initiative to stabilise the housing market will succeed in its aims and thus make walking away less attractive.
Because if it fails, the economic fallout could be felt far beyond America's shores.
Brace yourselves for the next great depression folks.
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Comments
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This has been talked about for months on US blogs and forums. It isn't possible for everyone but there are enough people that it does apply to that it will have a seriously bad effect on the market. The other variation on the theme involves stopping paying the mortgage but continuing to live in the house. Legal technicalities can see the foreclosure process stopped or held up for months if not years. In the meantime "owners" are staying put but not pay their mortgages.
There is also a lot of resentment like here that tax dollars are going to be used to bail out bad loans, bad banks and bad investments at the expense of the working and middle classes who keep paying their mortgages and taxes.A house isn't a home without a cat.
Those are my principles. If you don't like them, I have others.
I have writer's block - I can't begin to tell you about it.
You told me again you preferred handsome men but for me you would make an exception.
It's a recession when your neighbour loses his job; it's a depression when you lose yours.0 -
BobProperty wrote: »This has been talked about for months on US blogs and forums. It isn't possible for everyone but there are enough people that it does apply to that it will have a seriously bad effect on the market. The other variation on the theme involves stopping paying the mortgage but continuing to live in the house. Legal technicalities can see the foreclosure process stopped or held up for months if not years. In the meantime "owners" are staying put but not pay their mortgages.
There is also a lot of resentment like here that tax dollars are going to be used to bail out bad loans, bad banks and bad investments at the expense of the working and middle classes who keep paying their mortgages and taxes.
At least the average US taxpayer actually seems to have a glimmer of understanding as to what is going on here.
Such is the abysmal level of financial savvy in the UK that the average householder just reads all the propaganda about house prices and thinks that keeping the price of their pride and joy high is the be all and end all indicator of economic success :mad:--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
This situation is less likely to happen here as UK banks are in a much stronger position to chase outstanding debts for much longer (at least 10 years, longer if they can keep in contact with you). Why don't the Americans change to laws to make it harder to walk away, this will then help stableise the market by reducing the supply of repossessed property.0
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Land and property debt will haunt you for 12 years in the UK.0
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So am I right in thinking that now would be a fab time to invest in properties in usa?What doesn't kill you only makes you stronger0
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This situation is less likely to happen here as UK banks are in a much stronger position to chase outstanding debts for much longer (at least 10 years, longer if they can keep in contact with you). Why don't the Americans change to laws to make it harder to walk away, this will then help stableise the market by reducing the supply of repossessed property.
i think they will change the law, one of the banks had the bankruptsy laws changed so you can only go bankrupt once, after that any further debts can be persued till the day you die.
i cant see that the banks wouldn't push for the same thing with the housing situation.0 -
This situation is less likely to happen here as UK banks are in a much stronger position to chase outstanding debts for much longer (at least 10 years, longer if they can keep in contact with you). Why don't the Americans change to laws to make it harder to walk away, this will then help stableise the market by reducing the supply of repossessed property.
The whole 'non recourse' loan thing is crazy - you'd wonder why banks would lend money at all if they had no way of enforcing full repayment other than to take the property and hope it would cover the outstanding debt.
Against that backdrop, the lending behaviour of US financial institutions during the credit boom looks even more reckless and stupid. At least in the UK the bank knows that it can chase the unfortunate defaulter for the difference in a falling market once they sell the house.
That said, UK bankruptcy laws allow people to walk away from any amount of debt and it seems to matter not what the circumstances of the debt were: ie. a business owner whose customers didn't pay up vs an idiot spendaholic who maxed out on cards and loans.
I can see many tens of thousands in the UK turning to bankruptcy as an 'easy out' on unsecured debt. And as I outlined before, depending on how you play it you can go bankrupt and get to keep your house if it's in negative equity.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
So am I right in thinking that now would be a fab time to invest in properties in usa?
"It's cheap" does not necessarily equal "It's a good investment".
Northern Rock shares were very cheap towards the end.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
Ouch..that's an insane claim, insane in terms of the impacts could be unimaginable. Bet The Daily Braille was gutted it didn't break this one first"The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.
Statistics are like a lampost to a drunken man...more for leaning on than for illumination
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