House Price Crash Is Underway In The Us

[munimula]

http://www.forbes.com/free_forbes/2006/061...artner=yahoomag

Of those who borrowed or refinanced in 2005, 29% have zero or negative equity, calculates First American Real Estate Solutions.

A house-price collapse will be far worse than the 2000--02 bear market on Wall Street and will bring a serious global recession. Half of households own stocks or mutual funds, but 69% own homes. The resulting unemployment will kill many subprime borrowers' ability to make payments.

It is now absolutely clear that a full scale HPC is underway in the US. How is this going to effect us in the UK?

Personally I think that, as in the UK, US HPI has been funding a lot of spending there. The collapse in the housing market is likely to mean a collapse in spending and ultimately a full blown US recession - 12-18 months from now? How can this be avoided?

How will that effect us? Isn't a US recession going to hit us hard in the UK - is it inevitable that the US will lead us into recession too? Therfore do we need higher interest rates to deflate the housing bubble here - will a recession and resulting high level of unemployment do the job? Unemployment just keeps getting higher but has this even started yet?

[apom]

http://www.forbes.com/free_forbes/2006/061...artner=yahoomag

It is now absolutely clear that a full scale HPC is underway in the US. How is this going to effect us in the UK?

Personally I think that, as in the UK, US HPI has been funding a lot of spending there. The collapse in the housing market is likely to mean a collapse in spending and ultimately a full blown US recession - 12-18 months from now? How can this be avoided?

How will that effect us? Isn't a US recession going to hit us hard in the UK - is it inevitable that the US will lead us into recession too? Therfore do we need higher interest rates to deflate the housing bubble here - will a recession and resulting high level of unemployment do the job? Unemployment just keeps getting higher but has this even started yet?

Its been in progress here in the UK since the boom started, its a cycle..

Granted a very annoying one..

Will anyone else be glad when the "Property Rich" realise that they are infact just in debt more then they were...?

I was told yesterday that I was wrong and that the mysterious price drops in houses had not transpired.. I looked aghast and asked if they had seen the land registry.. showing drops.. They looked blank... sneared and asked why I hadn't bought then if prices were dropping.. giggles all aound..

Frustrating that people don't just accept that they are lower then I

http://www.theregister.co.uk/2006/06/05/island_monarch/

Now there is an idea..

[munimula]

Its been in progress here in the UK since the boom started, its a cycle..

Granted a very annoying one..

I agree that there are areas of the UK where perhaps prices have dropped a bit but the stats in the UK are nothing like those in the US, figures like 30% reduction in new home sales, 29% of people since 2005 in negative equity etc. We have nothing like that here - yet. A balanced view of the UK would be that we have pretty much had a level/stagnant market since 2004.

My questions are centred around the dramatic events emerging in the US housing market - these stats can't be argued with - there is a massive and full scale HPC in progress in the US right now.

How is that going to impact us here in the UK considering the US is the main engine of global consumption? Does anyone disagree that the US is simply not going to be able to avoid a recession and how will that impact us?

[apom]

Sorry about that..

I detracted from a very well put question.. With my normal levels of sarcasim..

I didn't realise that so many were in trouble in the US..

Its all about perception though..

Tell people that prices have gone up 35% since 2002 and they are happy...

Tell them that prices have come down 3% since mid 2005

and they are less happy..

America has seen the effect of massive borrowing and rising IR's..

We are about to..

[Guest Winners and Losers]

I've said it so many times, I've made it my signature. FFS.

[munimula]

I've said it so many times, I've made it my signature. FFS.

It does seem that US mortgage rates haven't yet gone up much;

Since the Fed started to tighten in June 2004, 30-year fixed mortgage rates first dipped from 6.3% to 5.6% in June 2005 and now sit at 6.5%.

so it doesn't look like it is high (mortgage) interest rates that are causing this crash - just the change in sentiment and the squeeze on spending due to higher fuel costs etc.

This would suggest that very minor increases in IR here could cause similar effects - maybe we only need 1-2% IR rises to really pop this bubble.

However, lets say that IRs in the UK don't go up, or that they only go up 0.25-0.5% and that whatever amount they go up by isn't enough to pop the UK housing bubble.

Will the US housing market collapse and a resulting US recession ripple across the pond and send the UK into recession and will a resulting UK recession on it's own, without increase in IRs be enough to bring house prices down here in the UK?

[nodumsunreader]

I agree that there are areas of the UK where perhaps prices have dropped a bit but the stats in the UK are nothing like those in the US, figures like 30% reduction in new home sales, 29% of people since 2005 in negative equity etc. We have nothing like that here - yet. A balanced view of the UK would be that we have pretty much had a level/stagnant market since 2004.

My questions are centred around the dramatic events emerging in the US housing market - these stats can't be argued with - there is a massive and full scale HPC in progress in the US right now.

How is that going to impact us here in the UK considering the US is the main engine of global consumption? Does anyone disagree that the US is simply not going to be able to avoid a recession and how will that impact us?

30% reduction in new home sales, 29% in nergative equity but what about prices? A HPC is only a HPC if prices are falling.

Edited June 6, 2006 by nodumsunreader

[munimula]

30% reduction in new home sales, 29% in nergative equity but what about prices? A HPC is only a HPC if prices are falling.

do the maths

[Flash]

30% reduction in new home sales, 29% in nergative equity but what about prices? A HPC is only a HPC if prices are falling.

Definition: negative equity

The difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. Negative equity can result from a decline in the value of an asset after it is purchased.

[nodumsunreader]

Definition: negative equity

The difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. Negative equity can result from a decline in the value of an asset after it is purchased.

The point I make is that unless lenders force sales for those who cannot pay the mortgages on these places then the owners will not sell at a loss voluntarily. Think about it, why would the banking sector commit suicide by reducing the value of assets held by people who owe them on a massive scale? Its the old saying that if you owe your bank £5 grand and cannot pay then you have a problem - if you owe your bank £5 million and cannot pay then its the bank that has the problem

[Guest Baffled_by_it_all]

Dumbsunreader - the problem with negative equity is that it feeds into the system. People are always forced to sell for whatever reasona and homes are repossessed.

[Flash]

The point I make is that unless lenders force sales for those who cannot pay the mortgages on these places then the owners will not sell at a loss voluntarily. Think about it, why would the banking sector commit suicide by reducing the value of assets held by people who owe them on a massive scale? Its the old saying that if you owe your bank £5 grand and cannot pay then you have a problem - if you owe your bank £5 million and cannot pay then its the bank that has the problem

That's like the argument that says that people will just refuse to sell so prices will not drop. Average Joe selling his house and holding out for his asking price has no effect on the market because Mr Highly-Leveraged Property Developer down the road MUST SELL now because he has bills to pay and cash flow to sustain, so he will drive prices down.

[nodumsunreader]

Dumbsunreader - the problem with negative equity is that it feeds into the system. People are always forced to sell for whatever reasona and homes are repossessed.

I'll take you word for it - no doubt you will very soon be able to post some stats from the US housing market to enlighten me further.

[geneer]

I'll take you word for it - no doubt you will very soon be able to post some stats from the US housing market to enlighten me further.

Get of your *rse and look for them mate.

Blindly waiting to be led...is there a better definition for "sheeple".

Edited June 6, 2006 by geneer

[nodumsunreader]

Get of your *rse and look for them mate.

Blindly waiting to be led...is there a better definition for "sheeple".

I take it that means a no then?

Ok looked into it - have a read of this should cheer you up:

http://patrick.net/housing/crash.html

Edited June 6, 2006 by nodumsunreader

[Guest Baffled_by_it_all]

What do you want? Stats that people are forced to sell? That repossesions happen?

Why not just look at the last crash over here. People sold their houses with negative equity. It happens, I don't need to prove it.

[Badger]

The point I make is that unless lenders force sales for those who cannot pay the mortgages on these places then the owners will not sell at a loss voluntarily. Think about it, why would the banking sector commit suicide by reducing the value of assets held by people who owe them on a massive scale? Its the old saying that if you owe your bank £5 grand and cannot pay then you have a problem - if you owe your bank £5 million and cannot pay then its the bank that has the problem

So lots of people owing the bank 1trillion between them gives them a rather large problem? Or just shedloads of cash in interest...

[theChuz]

So how does the US market affect the UK market?

[DICKDASTARDLY]

So how does the US market affect the UK market?

It doesn't, They're clutching at straws

[Pablo-silver or lead?]

Even through the good times US lenders (and any other institution with the legal right) are quick to reposes/posses property when lending or financial commitments related to the house are in default.

In one example a British couple lost their 5 bed detached holiday villa in Florida because they failed (unwittingly) to pay the Home Owners Association (HOA) dues (for the lawn cutting and street lighting) which amounted to $600. They came out on vacation and their keys didn't fit 'their' front door. The property was auctioned on Polk county court house steps for just enough to cover the outstanding mortgage, HOA dues and recovery costs.

I've got 100 Florida stories much worse than that and they'll all be in the 'book'.

Now the Florida market has fallen of a cliff (The real Estate guys say nothing much selling and thousands of properties coming on the market), repossessions will be happening like Orange blossom in a Hurricane.

Pablo Silver or Lead?

[munimula]

It doesn't, They're clutching at straws

The US, experiencing a massive HPC and the likely knock on effect on consumption and gdp growth, likely recession in the US will not effect us in the UK? What have you been smoking?

[theChuz]

Nearly 800 views and no one really knows

[Guest Winners and Losers]

Because it's gonna be global.

[theChuz]

Because it's gonna be global.

Well atleast someones in the know!

[sonixtorm]

Nearly 800 views and no one really knows

I don't know (I just read a lot and wonder ) but found the following interesting in terms of a relatively localised debt problem having wordwide effects: http://en.wikipedia.org/wiki/Great_depression#Debt

Just for the record, I am not postulating on the possibility of another depression, just highlighting that a debt bubble bursting in one county can affect others.