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San Diego Union Tribune: Creative Loans Push Overextended Owners Into Dangerous Waters.

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'Creative loans push overextended owners into dangerous waters.':

http://www.signonsandiego.com/uniontrib/20..._1h01loans.html

When she bought her two-bedroom condominium in Mira Mesa in mid-2004, Elizabeth Eure didn't envision herself one day sleeping on an egg-crate mattress in an empty unit.

The furniture was gone in December because Eure was preparing to move, awaiting the close of escrow. After living there less than a year and a half, she had sold her home to cut her losses. Her monthly mortgage payment of $2,500 was too much for her to handle.

"It was a mistake," Eure, 29, said of the purchase. "If I could do it all over again, I would have rented an apartment."

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It is my belief that "creative loans" will be the seeds of this last HPI's undoing. I lived in San Diego 1998-2005 (sold in late 2003--a year before the top) and got out before the Great Crash of 1989-96. The Great Crash was caused by drop in employment and speculation that suddenly came to a halt--a Realtor said that it was the day when all the switchboard lights went out. One day house sales were booming the next --nothing with Realtors sitting around with no phones to answer.

HPI in San Diego drained the local economy of liquidity. People's homes doubled in value but they became impoverished or "house poor (MEW was tougher in those days)." Homes were so expensive that people could not afford to furnish them once they moved in. In the area where I lived (very expensive Carmel Del Mar) many new homes had sheets up at the windows and bean bags for furniture. The rationale was: you had better get in and if you found you could not afford it you could always sell six months later for a huge profit. Then came the crash.

The same thing is, I believe, happening in the UK on a national scale. Liquidity is being sopped up into houses leaving nothing to buy new cars (worst sales for 12 years according to some reports), another dismal Christmas, DIY stores closing branches and so forth.

The "Creative Loans" remain cheap for the first couple of years until reality kicks in and mortgage payments rise. This is what is happening in San Diego (the US's largest bubble market). My bank manager there said that they expect to be foreclosing on record numbers of homes beginning last November when the first wave of "Creative Loans" get moved into realistic interest rates. Many people have borrowed on the basis of 1% introductory loans and face the national average of 6% for refinancing an ARM (adjustable rate mortgage). a 600% increase in interest rate will stress quite a few homeowners out. When enough people go bankrupt or see negative equity building the crash will begin in earnest.

Another bleak warning from the SD Union:

http://www.signonsandiego.com/news/busines...99-1n1slow.html

"Now, concerns are being raised that lenders have gone too far in making mortgages easily available through a host of new products. Analysts are alert for any signs of trouble, such as an increase in mortgage defaults."

"If an economic downturn does come, those most at risk are middle-wage borrowers who in recent years have relied heavily on highly leveraged loans to attain homeownership."

Reads like the papers from 1989.

Edited by Realistbear

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Realist bear is right. HPI is sapping purchasing power, leaving the only people circulating money in the economy are MEWers, debt-monkeys and those who bought a house years back and still have genuine disposable income - it's a dwindling pool.

We have friends on great incomes for their age, but they are now trimmed expenditure to the bone as they have a mortgage (on a tiny, inadequate place) that is just plain too big - they've just come off a fixed rate deal.

The government wants people to save, to plan for their pension, pay for their own education, certain aspects of their health care, pay more for environmentally damaging transport, to get on the ladder. All these are noble aims, but in the present debt-ravaged climate where fiddled inflation is low but where actual money creation (leading to rampant HPI) has been out of control, well, it's all nothing more than a dirty trick.

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greenspan encouraged a lot of people in the US into ARM's...

...and then jacked up interest rates :(

"ever had the feeling you've been cheated?" :P

there is also the "negative amortisation ARM" - as well as not repaying the capital,

some of the interest IS ADDED TO THE PRINCIPAL. :o

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Realist bear is right. HPI is sapping purchasing power, leaving the only people circulating money in the economy are MEWers, debt-monkeys and those who bought a house years back and still have genuine disposable income - it's a dwindling pool.

And the renters. :)

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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