Android Expert
Dec 9, 2011
Third Stone from the Sun
Are we heading towards another housing bubble bursting???

How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme

Wall Street's foreclosure crisis, which began in late 2007 and forced more than 10 million people from their homes, has created a paradoxical problem. Millions of evicted Americans need a safe place to live, even as millions of vacant, bank-owned houses are blighting neighborhoods and spurring a rise in crime. Lucky for us, Wall Street has devised a solution: It's going to rent these foreclosed houses back to us. In the process, it's devised a new form of securitization that could cause this whole plan to blow up
Why am I not even slightly surprised :thinking:

Here in the UK we definitely have another housing bubble - London house price inflation is running at around 10% PA and rising - that our government has worked tirelessly to create :eek:

Have they learned nothing from the crisis? :pound:

Absolute insanity, but completely consistent with their arse-about-face economics: cut spending to fix a problem with insufficient spending thereby extending a recession that dramatically cut revenues to fix a problem with insufficient revenues :stupido2:

That we have finally - at least 2 years later than necessary - come out of recession is nothing short of a minor miracle :rolleyes:

And they want to fight the coming election on their economic record :rofl:
Yup. Really, we are still in the same housing crisis that started years ago. Just that the appearance of recovery was temporarily induced by economic/fiscal manipulations that have propped up housing prices in most places (in the US) for the past couple of years. There are myriad reasons the pigs in charge decided to do this:

1. Have to maintain the illusion of wealth of the masses. For most, a home is the single most valuable (read: expensive) thing they own. Allowing home values plummet is a psychological blow that will result in a mass downturn of consumption in other areas of the economy. It will also prevent home equity loans to extract cash from the putative value of the home so the owner can blow the money on more stupid crap the don't need (which goes straight to GDP, and that has to be kept up as well like a 4 hour Viagra induced stiffy).

2. The Banks. Yeah, they are screwed if the value of housing goes down in any significant way. Since most homes have a mortgage on them (many have more than one in the form of home equity/cash-out refi type loans) if the values drop the banks are left with assets worth less than the amount of the outstanding loans. Boom, instant insolvency for the bank if enough of these happen quickly. Incidentally, if the first mortgage on a home is underwater, what do you think the second is worth? Yeah, exactly 0. This is also why many homes have not been foreclosed upon despite extended periods of non-payment. The banks know this instantly blows up the second mortgage and forces a write down on both the first (to actual market value) and the second (to nothing at all).

As well, there is still enormous shadow inventory (bank owned homes by way of foreclosure) that are held off the market indefinitely. They cannot sell all of this vacant home inventory as it will glut the market and drive prices down. So, propping up home prices also helps them meter out the shadow inventory at a manageable pace and sell those homes at inflated values vs. what they are really worth.

And, there are still many homes that are unsaleable as they were stripped/vandalized by either resentful owners who were foreclosed upon, or by idiots who happened to find them vacant and unsupervised, and decided to break in and trash the place. Many of these will cost too much to restore, and will ultimately get bulldozed. That will result in write-downs for the banks that own such properties. Needless to say, they are forestalling this as long as they possibly can.

3. By extension to #2, the stock market is also reliant upon housing values being maintained. Since mortgages were sliced and diced as securities, if the value of the homes tied to the mortgages packaged in those securities goes down the drain, so too do the MBS's. This in turn tanks who knows how many mutual funds, pension funds and anything else that invested in mortgage backed securities.

4. Property taxes, and all that they are used to fund. Most notably school districts (public schools) and major municipal services (street repairs, refuse collection, etc.). If housing values drop, this usually forces a drop in property tax revenues as these are levied as a percentage of the assessed value. Of course, the taxing authority (generally the municipality/locale in which the property is located) gets to set the assessed value. This is often calculated on a quasi-secret formula (us plebes are assured it is very complex and beyond our ability to fully comprehend) a component of which is recent sales of comparable properties (and again, what constitutes comparable is in the sole discretion of the taxing authority). Nice conflict of interest there, yes?

All in all, as housing values are inextricably linked to virtually every other aspect of the economy, the destruction of value in housing will simply start a domino effect that will take out everything else in turn. Despite the insistence that value not be allowed to drop, the adjustment will come eventually. Consequences cannot be avoided forever. And when the inevitable finally happens, there will be howls of pain and discontent, and calls for the government to "do something". Rest assured they will, and whatever that is will make the problem worse.

I am increasingly getting the gut feeling that we haven't much longer until the next super-nova level economic crisis, of which a correction in housing values will be just one aspect. The stock market, retirement, entire business sectors and even governments will be wiped out. The latter particularly due to the fact that the bond market will finally call their BS and make it impossible to continue borrowing money to pay for government operation that is not directly funded by current incoming tax receipts.

This will create an uproar the likes of which have not been seen before by anyone presently living. It will also create war as Government will seek to protect it's existence by extracting the operating funds it [thinks] it needs by other means; massive taxation, confiscation of bank balances (ala Cyprus), expropriation of corporations and their property (this has already happened to a limited extent), and God only knows what else these sociopaths will try to hang onto power. The upshot is that people will finally crack under the pressure of too much being stolen from them and the results will be both ugly and entirely predictable. In essence, empire collapse.

This is the kind of stuff that happens so infrequently (very long multi-generational timelines involved) that most people cannot conceive it as they have no frame of reference to understand how it can take place. Nobody alive today has witnessed these events take place in their lifetime. Not even the great depression was a disaster of this scale. So, it is understandable that most are are biased towards believing that it simply can't happen.

Oh, and regarding London. I read you poor sods are being offered rentals of old steel Chinese shipping containers as "homes" for 75 GBP/monthly in an article earlier. Now that's a bloody wind up if ever I heard one! Doesn't quite fit the upscale, cosmopolitan image of your city, does it now? Welcome to reality. We've got those here across the pond too, though some enterprising individuals have actually welded multiples together to make larger "deluxe" shipping container homes.
Honestly not worried about a housing bubble right now, as prices are not even back to the pre-bubble bursting level from all those years ago. More concerned about a stock market bubble. No reason for stocks to be this high, but of course no one wants to mention it for fear of upsetting the apple cart.

Agree fully. I'm not concerned about a housing bubble inasmuch as I own my place, only bought what I could afford and have no plans to sell anytime soon.

The stock market is pure fantasy at this stage though housing tanking is one potential trigger to end the never ending rally. There are others as well, no telling what will cause a sudden knee-jerk return to reality.

I am out of the market completely at this point as it could blow off at any time now.