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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: loantech who wrote (37378)7/31/2005 1:12:12 PM
From: Tommaso  Read Replies (6) of 110194
 
>>>But when a majority of borrowers I see at my home loan desk want 100% financing I say they are wrong. <<<

I think you are completely correct.

But I think that the financial discomfort (of people who either lose their houses or who hang onto properties that are not worth what they owe) will be increased by rising prices of necessary commodities. I think a great deal of seeming wealth will simply vanish. But I do not think that this loss of purchasing power will result in lower prices for gasoline, heating oil, natural gas, electricity, or food. If we had a closed domestic supply and market for these things, prices could fall. But the demand is world wide and is growing.

My guess is that a lot of people will have to walk away from four-bedroom, 3 1/2 -bath houses and install themselves in three-bedroom, 1 1/2-bath apartments. I don't know what then happens to those foreclosed properties. What happened in the 1930s was that foreclosed properties became rentals. There were wonderful bargains available in rental properties, where the new owners had to get whatever income they could. Houses that had been selling for $400,000 might end up renting for $1200 a month. Houses in the 1930s that had been built for $25,000 could be rented at $75 a month.

But all this is just guess and speculation. It is clear that a huge crazy mess has been created. The outcome will, I think, be an awful mixture of price drops in some things and price rises in others. Houses, stocks and bonds: Down. Commodities: up. Wages and many services: seemingly level but actually dropping because of a declining dollar. The "wealth effect" of houses and securities will vanish.
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