Less than 20% fall in home prices will destroy the banking system?

Discussion in 'Economics' started by moo, Mar 28, 2007.

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  1. moo


  2. There aren't margin calls on homes....the majority will remain in their homes and things will be fine so long as employment remains stable and economy remains relatively healthy.
  3. silk


    Yes. When the 1.5 million foreclosures hit the market later in the year prices will fall to the next level and there could be a snow ball effect. More and more folks will walk away from their homes as they realize they have negative equity.

    Better to not pay mortgage and live "rent free" for 4-6 months while the foreclosure process works through then to pay 4-6 months mortgage payements/taxes/insurance. Easy decision. You save 10,000 by not making mortgage payment and walk away from a $10,000 upside down mortgage.

    Thats $20,000 in savings.

    If the economy away from housing ever slows down in big way look out! Great Depression II.
  4. moo


    That sure is the conventional wisdom! :D

    Why would anybody with, say, 20% negative equity in his home and no or little other assets choose NOT to foreclose and just walk away from way-too-high monthly payments?
  5. What with Insurance premiums tied to your credit score, that'l put a lot of folk in a bad position.
  6. silk


    And remember, alot of the first time home buyers of last few years were really "renter" types but got lured into the hype that you have to buy a home to make money. Plus all the new zero down mortgage programs.

    Now that these folks see what a pain in the butt it is to be a homeowner, they will happily walk away from their upside down mortgage and go back to renting.

    You think many of these folks did any upkeep on their house for the last couple years. Nope. Now the house needs some repairs. Banks will dump these houses on the market and be happy to sell for 15% less than what the neighbors are hoping to sell their houses for.

    Presto, the foreclosure is the latest COMP and housing prices just sank 15%.

    1.5 million such cases about to hit the market they say.
  7. kowboy


    Silk, Do you have a link for the number of foreclosures at 1.5 mil? Somewhere I saw another estimate at 530k. Be an interesting read if you can find a link.

  8. TGregg


    It's worse than that (and I'm no doomsayer as readers of this forum know well). Naturally most of the Barely Can Afford A Home Even On These Ridiculous Terms crowd bought homes in the same neighborhood. Many of these streets have 20-25% foreclosure rates, with many others just hanging on.

    In other words, not only are the homes falling apart, but so are the neighborhoods they are in. Location, location, location. . . .
  9. MattF


    some areas that are urbanized enough or very close to it could easily get converted to section 8 or something just to get the stuff off the market...hey it may be a slum, but it sure beats being abandoned! :D
  10. blast19


    Exactly...credit schmedit, 20-30% loss or a dent in credit? In the next 2-3 years that will be pretty common eh?

    A lot of people are going to be walking away.

    This is going to be the tech bubble times ten and instead of a lot of useless domain names there will be tons of houses renting for 30% of their mortgages!
    #10     Mar 29, 2007
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