Thursday, July 29, 2010
Why house prices will collapse and interest rates will rise
The rating agency Standard & Poor's said banks are at risk of a vicious circle as sovereign debt fears and financial stress feed off each other. Most of their mortgages and other personal loans stay on their balance sheets and require funding. This contrasts with the US, where financial institutions securitize (these) loans and which do not require balance sheet funding. The collective funding needs of Europe's banks are vast. Total liabilities are â‚¬23 trillion for the Euro-zone and â‚¬8 trillion for the UK, Sweden, and Denmark. The lack of funding over the next 2 years must surely mean a collapse in house prices and mortgage interest rates.