The bursting of the U.S. housing bubble has left homeowners buried under about $4 trillion of excess mortgage debt, according to Dhaval Joshi, the chief strategist at RAB Capital.
Read it all and take the time to read the longer analysis here.
Housing Bubble Leaves $4 Trillion Hangover: Chart of the Day
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Prices are down and interest rates are very low. Where are the buyers? They are not here because the boomers decided not to have children. And the band played on. Statmann
I usually agree with you, Statmann but not this time.
The buyers are all immersed in immense quantities of credit card debt and other debt because they chose gameboys and plasma flatscreens and new cars and more house than they needed.
And the problem will only get worse as long as lenders persist in counterproductive and often illegal foreclosures. Recent cases suggest that 60-80% of foreclosures in CA are being done illegally. More foreclosures = lower values = more foreclosures… And that also leads to more unemployment = more foreclosures… What people are not seeing is that, despite widely-trumpeted anti-foreclosure programs such as HAMP, bailouts of (e.g.) AIG allows it to pay off credit default swaps. That means leners who bought CDS will be better off to foreclose and collect on the swap than modify, which generally does not trigger the CDS. Sadly, there is apparently no requirement that those who benefit from such bailed-out CDS insurers have any obligation to help stem the mortgage crisis.
Homeowners owe more than their houses are worth. That’s because some homeowners thought they could get something for nothing, even though they know when something seems to good to be true, guess what? it usually is. It’s also because banks were happy to sell their sketchy loans to fund skanks who bundled them into bogus investment vehicles. So, we had an unholy alliance of folks collaborating to make pretend money at the expense of people who didn’t buy into this nonsense and are being asked to fund the bailout of their irresponsible neighbors and fraud-purveying corporations. The sad thing is that the responsible parties are not talking about it, they’re too busy working away and paying their mortgages. Nobody’s representing them because they’re not whining and crying and asking for handouts. It’s disgusting.
Actually, a great deal of the issue comes from the implicit assumption that the purpose of buying a house in the first place is investment. If the purpose is to own a place to live, then it doesn’t necessarily matter what the value of the place is, as long as the payments are kept current. I say “necessarily” because contingencies do intervene: in the first place because people have to sell for other reasons, and therefore must convert the property into cash towards the purchase of the next place to live, and in the second, because the bank necessarily must keep an eye on the property as collateral.
My, my how quickly we forget. #1 blames boomers who had too few kids. #2 blames aggregate debt, which has an element of truth. #3 blames lenders and illegal foreclosure (what is that?). #4 blames greedy buyers, an element of truth there. And #5 believes buyers had faulty reasons for buying, an element of truth there.
Does anyone recall the Community Reinvestment Act, the Bush “Ownership Society”, ACORN bank demonstrations, the supposed evils of “redlining”, Fannie and Freddie buying any piece of paper shoved under their doors so they could gin executive bonus numbers? Do the names Barney Frank and Chris Dodd ring a bell?
When you throw the rule book out the door and declare repayment of a mortgage is not required for home ownership, all the other behaviors listed above will appear. And now we have passed this latest financial saving grace that will just distort the system in new ways, much like Sarbanes.
Those who don’t remember history will probably get a chance to relive it.
5, I couldn’t agree more.
Capt. Deacon Warren, you are absolutely correct. I have a close relationship with one who was working as a mortgage broken during the boom times.They were making mortgages to people who did not have a prayer of repaying them, and everyone from the borrower to the lender knew it. But Frank and Dodd were making easy money available and insisting it be used. And liike all bubbles do, this one broke also.
desert padre
Capt. Deacon Warren: Excellent coverage but the boomers item remains valid. Statmann
Not really, Statmann. It isn’t as thought the US population is actually dropping.
Well, much of the population stability is because of immigration, not native birth rates. Most of the immigration is from Mexico, and the immigrants are primarily less educated and poorer than U.S. citizens. That has a direct impact on house prices and affordability.
EXACTLY, Sarah. And, bizarrely enough, they used the big homes they couldn’t afford as ATMs so they could buy the big SUVs to put in front of them and the big LCD TVs to put inside of them.
Those of us who lived within our means and are content with what we can afford to have are paying for all of this excess in many ways. Even though family sizes are smaller than in previous generations, it’s difficult to find a reasonably new home that is less than 1,500 sq. ft., even though that’s an appropriate size for a couple with one or two kids. And if you DO have one — you can’t sell it, which is the problem I had on both ends of the equation. Even childless couples or couples with one child said my 1,450 sq. ft. home was “charming, but too small.” Three bedrooms, two full bathrooms, kitchen, living room, dining room, and family room “too small” for two or three people?! My sister and I grew up in a 2-bedroom bungalow and never felt cramped or deprived, except we did dream of how awesome it would be to have a second bathroom with three women in the house, LOL.
I was raised in an age and Christian community that valued hard work, spending money wisely, and not letting possessions (or the drive to acquire them) become excessive. The new “norm” has long distressed me. The “prosperity Gospel” offends me. Not because I don’t have what society considers the “norm” (that’s by choice rather than by circumstance), but because our churches haven’t been a reliable voice of reason amidst all of this. In fact, it often seems like wealth and material displays of it are admired by church people.
I’ve heard many sermons extolling the virtues of humility and good stewardship and many exhortations to help the poor but I’ve never heard any clergy or lay leaders preach anything counter-cultural to the lines secular society routinely imposes. I guess they don’t want to offend the big contributors and/or the business people and bankers in the congregation.
Or do most Christians inwardly feel that material success and its trappings really ARE signs of blessing and God’s favor, even though they won’t go as far as the prosperity Gospel people and admit it?
Teatime, we sold a house about 6 years ago and after only about 14 months of ownership we pocketed a hefty profit. Some neighbors down the street came to visit after the “sold” sign was in the front yard. They confessed that their new Harley and the new Covertible had been bought using a refi even though Mr. Neighbor had recently lost his union job and was running a forklift in a warehouse now. Over the years we often have wondered if they survived or got foreclosed after house values quit going up and up and up.
Golly – should have never bought that 7,000 square foot 5 bedroom (despite having only 2 kids) home with the 4 car garage, and a car in every garage! Should have bought a 3 bedroom ranch just like mom and dad lived in so successfully for 60 years. Could have had those cars paid off by now. Could have put away some money for Johnny and Suzie’s college tuition. Could have….nah. Let’s just get mad and blame a fat cat banker.
C. Wingate: Sure the population is growing because of immigration. So sell that oversized house to an immigrant. Duh. Boomer comment is still valid. Statmann
Well, I knew that, but you know, it’s pretty ridiculous to think that we have to keep breeding in order to keep up housing demand.
#16, maybe not to keep up housing demand, but just look across the east and west ponds at what below-replacement-rate birth rates are doing for Japan and Western Europe. Those wonderful cradle-to-grave social welfare states are going to implode without young workers to foot the bill for all those retirees.
Children are a blessing from God in many, many ways.
C. Wingate:
I dislike calling having children “breeding”. It is a rather crude way to describe one of the greatest blessings that one can experience in life. I receive such joy standing in line with “these little ones” to receive the Holy Mysteries. Good lesson in humility. But I guess many boomers will never see it that way. Statmann
Boomer women, for the most part, have passed their “spawn by” dates, so on that score what’s done is done. Nonetheless I do not see the relevance. When it comes to cause and effect, the builders have some twenty years of warning for how big the year’s market of new home buyers is likely to be. If they overbuild and thus flood the market, the fault is theirs, not that of people two decades earlier deciding whether or not to have a child at that time. Birth rates hit their last trough back in the mid 1970s, people who are now in their mid 30s; if the birth rate were such a drag on the housing market, we would have seen the bubble burst a decade ago.
C. Wingate: Again, I dislike you use of terms regarding the birth of children. The dictionary says that “spawn is to give birth to, usually used DISPARAGINGLY of human beings”. So, again, I will accept your boomer low regards for children. By the way, if you can’t grasp the connection between low bith rates and housing sales, retake Econ 101. Statmann
For your information Statmann, I have three children, the youngest of whom was born with Downs syndrome. My wife and I married late, so three children, I think, is enough. And it is not I who introduced the notion of children as being required to keep the economy going. Finally, as I said before and you simply ignored, it isn’t as though the builders had no warning as to the number of households who would need or desire housing. Overbuilding can be laid on them, not upon those who did or did not decide to have kids a decade or two earlier.
One can look at the last two charts and see the problem: the trend of household creation is pretty steady, if declining slowly, but the rate of construction swings back and forth. But starting in the mid 1990s the overbuild ignores oscillations and just keeps climbing. It isn’t buyers or the decline thereof that did that; it was that an awful lot was built that, in the end, was unsellable. That building was predicated on the delusional belief that the market would keep ballooning. In the end a crash was inevitable. Fluctuations in childbearing simply do not enter into the picture, at least as it appears in those graphs. It’s more or less as TT2 said: the stuff was built speculatively, and the banks/fed/Fannie Mae kept the money spigots running to keep getting their cut. It was unsustainable because sooner or later people were going to have trouble paying it all back and they were going to run out of customers.
C. Wingate: I am very sorry that you have taken my statement about the boomer group decision to be a judgment on your individual family decision. A statement about any group is seldom if ever true of all in the group. Perhaps, I have been overly affected by the dire predictions based of the low birthrates in Japan and Europe. I regret any hurt that I may have caused you. Statmann