I believe that Martin Feldstein is on to something. He believes that individuals will have their own self-interest in mind and walk as prices decline, unless the government arrests the decline in prices.
A long recession is coming according to Felsdtein. 5 years? 10 years? He would not answer.
Because of the decline in house prices that has already occurred, more than 10m home owners now have mortgages that exceed the values of their house. This is 20 per cent of all homeowners with mortgages. For half of that negative equity group, the debt exceeds the house value by more than 20 per cent. If house prices fall another 15 per cent, negative equity mortgages will rise to 20m.
Negative equity mortgages are a big source of instability because US home mortgages are generally “no recourse” loans, implying that if an individual defaults on his mortgage the creditor can take the property but cannot claim other assets or income to pay the remaining loan balance.
The large and growing number of homeowners with negative equity will increase the rate of defaults and foreclosures and therefore drive the downward spiral of prices. Defaults are likely to accelerate as the ratio of the debt to the home value rises. While a homeowner who owes 10 per cent more than the value of a house may continue to service the mortgage, when the excess debt reaches 30 per cent he is much more likely to default. Each such default puts downward pressure on existing prices, increasing the likelihood of further defaults. It is this spiral that threatens the American economy and the global financial system.
No kewp, come on. A house is most Americans’ biggest investment, therefore they should have to spend way more than they can afford on one, and then that house should appreciate disproportionately so they can feel rich, take out equity and then spend more on consumption.
Afterall, it’s not their fault prices are going down, they’re innocent victims.
No kewp, come on. A house is most Americans’ biggest investment, therefore they should have to spend way more than they can afford on one, and then that house should appreciate disproportionately so they can feel rich, take out equity and then spend more on consumption.
Afterall, it’s not their fault prices are going down, they’re innocent victims.
No kewp, come on. A house is most Americans’ biggest investment, therefore they should have to spend way more than they can afford on one, and then that house should appreciate disproportionately so they can feel rich, take out equity and then spend more on consumption.
Afterall, it’s not their fault prices are going down, they’re innocent victims.
No kewp, come on. A house is most Americans’ biggest investment, therefore they should have to spend way more than they can afford on one, and then that house should appreciate disproportionately so they can feel rich, take out equity and then spend more on consumption.
Afterall, it’s not their fault prices are going down, they’re innocent victims.
No kewp, come on. A house is most Americans’ biggest investment, therefore they should have to spend way more than they can afford on one, and then that house should appreciate disproportionately so they can feel rich, take out equity and then spend more on consumption.
Afterall, it’s not their fault prices are going down, they’re innocent victims.
Ahh, moral hazard everywhere one looks. I guess if they can do it on Wall Street, they can do it on main street. What about the car loans? Credit cards? Well, may need to live on the cc, so better pay those. Park the car 3 blocks away so the repo man cant find it. Or repo cant find you when you walk away with no forwarding address and a different job, or no job.
Ahh, moral hazard everywhere one looks. I guess if they can do it on Wall Street, they can do it on main street. What about the car loans? Credit cards? Well, may need to live on the cc, so better pay those. Park the car 3 blocks away so the repo man cant find it. Or repo cant find you when you walk away with no forwarding address and a different job, or no job.
Ahh, moral hazard everywhere one looks. I guess if they can do it on Wall Street, they can do it on main street. What about the car loans? Credit cards? Well, may need to live on the cc, so better pay those. Park the car 3 blocks away so the repo man cant find it. Or repo cant find you when you walk away with no forwarding address and a different job, or no job.
Ahh, moral hazard everywhere one looks. I guess if they can do it on Wall Street, they can do it on main street. What about the car loans? Credit cards? Well, may need to live on the cc, so better pay those. Park the car 3 blocks away so the repo man cant find it. Or repo cant find you when you walk away with no forwarding address and a different job, or no job.
