Monday, June 1, 2009
US Mortgage Market Meltdown
U.S. Housing Mortgage Market Meltdown, More Pain To Come-
T2 Partners has a phenomenal series of charts on the housing crisis stating Why There Is More Pain To Come. The report is 69 pages almost all of them loaded with charts. I took a liberal selection below, adding plenty of comments, but please take a look at the original article for many additional charts. All charts below are from the article. Quotes from the article in italics. My comments are in plain text.
Posted by nadeem walayat @ 12:56 AM (3466 views)
7 thoughts on “US Mortgage Market Meltdown”
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alan says:
Excellent graphs and exceptionally good analysis.
Thanks for this post.
uncle tom says:
One of the big problems when comparing the US and UK housing markets is that just about every statistic is compiled differently. There is also the matter of US houses being literally three times the size of British ones..
Comparing house prices with the household income of homebuyers, suggests that the American market is now running at a factor of around x4 for new builds, and less for older property; which suggests that financial sustainability has just about been reached.
For the same degree of affordability to exist in the UK, prices need to drop by a further 20-25%.
However, the true worth of US housing, taken from a construction cost perspective, is far greater than that in the UK.
At current UK house prices, the land a house sits on is still worth more than double the value of the bricks and mortar placed on it.
The shortage of land in the UK is only a result of obsolete planning law that has Stalinist origins – the release of just 0.4% of all open land in the UK would enable the housing stock to be increased by more than 10% – enough to blow the land premium out of the water.
The next government will be desperate to find ways to get unemployment down – encouraging home building is one of the easiest ways to achieve that.
icarus says:
UT – true, but it was credit expansion rather than land scarcity that caused the rise in house/land prices in the 10 years to early 2008, and, as you know, there are financial and political interests in supporting the new level of house prices
uncle tom says:
“as you know, there are financial and political interests in supporting the new level of house prices”
One of the big questions that I’ve played with over the years, is whether these interests have the power to prevail.
There was a fairly widespread belief that “the govt wouldn’t let house prices collapse” – not realising that the housing market is bigger than the govt.
At this stage of the game they have even less scope for influencing matters.
Looking forward beyond the General Election, the recent revelations about corruption in politics and the collapse of Nu Labour, will result in the next House of Commons having an exceptionally large number of new members – possibly a majority of them, and certainly a majority on the Tory benches.
These new boys are likely to be pretty puritanical (at least at first..), and will be wanting to distance themselves from the old guard, and to hold the moral high ground. Few will have major property interests.
Taking a selfless and proactive stance on homelessness and unemployment will come naturally to the new intake, and the old vested interests will find themselves confronted with deaf ears.
icarus says:
@ 2 & 4 Whether the interests prevail is another question, and a govt that tries to buck markets is playing a dangerous game – but it doesn’t have to cause price falls proactively by changing planning policy and encouraging housebuilding. There’s also a huge section of the electorate which wants house prices supported and its need is more urgent than that of potential FTBs who are waiting for price falls. And you can never discount the power of the financial sector, which needs to support its mortgage-backed assets and can withhold funds from new property development if this is in its interest.
icarus says:
@4 – having the odd purge actually validates a political system. Instead of asking “what are the conditions under which all this cr@p happened, and how can we change those conditions so that it doesn’t happen again?” they’re asking “who did the dirty deeds? – let’s get rid of them so we can carry on as before (with a few safeguards tacked on)”.
drewster says:
This article was originally written by Mike Shedlock of Mish’s Global Economic Trend Analysis. This is not an original post from MarketOracle.