I have a question that I’ve not seen answered. Where did the the two plus trillion loss of wealth go? Did it dissapear or did it transfer?
Much of it was made out of air in the first place. Something without real value (artificially low rate credit) was chasing overpriced goods. Overpriced, as the credit offered with terms above the ability to pay them back generated more demand than market forces should have dictated.
When someone is offering a home loan that’s under water at the onset, people overbuy, figuring the value of the home will go up & a more conventional loan can be taken out down the road. You have a lot of people make that gamble, it inflates the market, people willing to bid higher than they otherwise would.
When the true market value tries to assert itself, due to defaults, wild credit & terms dry up. Then you have fewer buyers chasing the goods, which deflates the value to a more realistic market value, dictated by a greater ratio of *qualified* buyers.
Housing was only one sector where that sort of thing was going on. Many of the instruments that underpinned the activity were leveraged, which inserted even more air.
What happened to the wealth? It was marked to market, i.e. it wasn’t worth the paper it was printed on.
If your house is worth less this year than last year - where did the money go? I think it's the same place - money heaven.