Price/demand cyclical changes occur because they must occur. It is the nature of the beast and in mortgages, it goes back and forth between commercial property development and residential. In each case, when the supply finally exceeds the demand, the prices fall and someone is left out on a limb.
The housing situation was exacerbated by younger upwardly mobile people engaging in what is now called “House flipping”.
Years ago, this practice was confined more to professional investors and real-estate agents. This time, there was a fad that developed that involved less mature and experienced people who tried to make a fast buck. They got burned by the same sort of loan arrangements that burned many investors back during the Carter administration when rates skyrocketed to more than 18%.
These things will continue in perpetuity. Financing angles will continue to be used by some buyers, and balloon mortgages, adjustable and interest only arrangements are all legitimate vehicles for the variety of different needs that purchasers have.
In my opinion, there is likely not a single buyer in this last housing mess that did not have all the facts about what they were doing. The risks are always explained, but somehow when things go bad the fingers always wave. Nobody ever thinks it will happen to them.
As far as I am concerned, the whine and cheese is human nature. They will take their lumps and with little or no down payment,the lumps are not great and the damage is confined to their credit ratings. The lenders all have various hedges and insurance and will survive via mergers and or refi...Portfolios are being rebalanced.
In twenty or thirty years, it will all repeat again as institutional memories are quite short these days. The next crisis will be a repeat of the commercial problems we had in the 70s and eighties.
As the world churns............................
Exactly! Even 'flipping' houses isn't new - just a new name. We knew a lot of people in the 70's who moved every other year, building on the increasing value of their homes - it worked for them till the interest rates skyrocketed in the 80's. That created a huge bust in the construction industry nationwide that lasted for years (my parents, as contractors, nearly lost everything) until rates and prices came back in balance. The 'flippers' of the day ended up in their latest, largest, most expensive home, heavily mortgaged because they didn't see the end of the market, and had to stay put for 10 years. It's part of having a free market that cycles come and go, and people tend to forget the lessons of earlier times. That's partly because our education system refuses to teach economics or anything else that involves critical thinking...
All true except that apparently, up until now, there has never been the degree of outright fraud foisted upon the rest of the world that, up until now, considered the soundness of U.S. economy beyond question. Brokers of mortgage securities and those that rate those securities burned the very people that depend on the honesty the US economy implies. I know of no other time in the history of this country where the integrity of this country's economy was so seriously called into question. And to compound the damage, I don't think there has been any other time in this country's history when we depended almost entirely upon other countries financing our economy.
Any comparisons made with past bubbles or spikes are now meaningless and amount to whistling very nervously while continuously looking over your shoulder past the graveyard.