I have a question. We’re told when the foreclosures started the value of these securities went down. Haven’ there always been foreclosures? Why was it so bad this time? Is it because the value of the property plummeted as well when during “regular” foreclosures the property value stays the same or appreciated. Am I correct?
I have a question. We’re told when the foreclosures started the value of these securities went down. Haven’ there always been foreclosures? Why was it so bad this time? Is it because the value of the property plummeted as well when during “regular” foreclosures the property value stays the same or appreciated. Am I correct?
The key to understanding this is to examine a plot of both the median house price and the median household income as a function of time. For many years prior to the Carter administration the median house price tracked about 3X the median family income. When prudent loans were made, that is what consumers could afford. With the passage of the CRA during the Carter administration, housing prices began to rise more quickly. The bubble didn't really get going until the Clinton administration with the great expansion of Fannie and Freddie. All this increase in valuation was caused by easy credit. When that went away during the collapse of the sub-prime market, values had to fall to closer 3X median household income. Globalization is putting great stress on median household income, so I think housing prices cannot increase until income rises make more expensive houses affordable.