4 ms·

I agree - especially this part of Dodson's comment: "When sub-prime borrowers began to default in droves and the value of the private label MBS tumbled, invest

I agree - especially this part of Dodson's comment: "When sub-prime borrowers began to default in droves and the value of the private label MBS tumbled, investors also pulled away from the conventional MBS market as well, even though these borrowers continued to make their payments. However, with a short period the domino effect of defaulting mortgagors spread and then began the recession." I've always viewed the housing crash as the result of the bottom falling out of the housing market. I don't know how common it is now, but in the early 2000s, it was very common for people to view homeownership as some sort of magic escalator to riches - one would buy a home, then basically be guaranteed to resell it for significantly more later, and the gains would be used to buy a more expensive home. I went to a free "how to buy your first home" presentation around 2002, and this was exactly the model recommended by the people giving the presentation - people who worked in the home loan and real-estate field. Basically "buy the most expensive house you can possibly afford now, because you'll be making more money in a few years and what you think is an expensive monthly payment now will seem like nothing. Then you can resell your home and buy something even fancier." Obviously, this depends upon a constant influx at the bottom of the "escalator", which is unsustainable because it's a pyramid scheme. The collapse of that pyramid is exactly what happened, IMO, and it wouldn't have been possible without the sub-prime lending.

chiefalchemist 9y ago
"...but in the early 2000s, it was very common for people to view homeownership as some sort of magic escalator to riches - one would buy a home, then basically be guaranteed to resell it for significantly more later, and the gains would be used to buy a more expensive home..." I'm not so sure that perception has changed. Sure, the magic escalator might be moving slower, but most people buy believing values are guaranteed to go up. Likely. But once you factor in the true total cost of the mortgage, taxes, repairs, etc. The profits are slim. Kids might be a justification for home ownership. But most other favor the Homeownership Industrial Complex, as well as gov. Let's not forget Big Inc who love it when you're locked into a mortage.
jpmattia 9y ago
> The collapse of that pyramid is exactly what happened, IMO, and it wouldn't have been possible without the sub-prime lending. imho, housing prices would have declined sooner. The valuation of houses was already wacky in 2001 by many measures. For example, look at the price-to-rent: https://3.bp.blogspot.com/-GVhHsBNhPfE/WP-6gJXNhTI/AAAAAAAAq6g/KfHIu3Mj86suoDIK-uM_EFCq3wEgVbZfgCLcB/s1600/PriceRentFeb2017.PNG https://3.bp.blogspot.com/-GVhHsBNhPfE/WP-6gJXNhTI/AAAAAAAAq... In 2001, prices were already at the level of the 1989 real-estate bubble: Older folks will remember the savings and loan scandal, which was the result of the 1989 bubble collapsing. The Fed thought it needed to compensate for the internet bubble collapsing, which was a large contributor to the ensuing mess in housing. It has to make us wonder: If compensating for the internet bubble lead to the housing bubble (and collapse), what will the result of compensating for the housing bubble be?
- dood 9y ago
  It's bubble-compensation all the way down.

chiefalchemist 9y ago

"...but in the early 2000s, it was very common for people to view homeownership as some sort of magic escalator to riches - one would buy a home, then basically be guaranteed to resell it for significantly more later, and the gains would be used to buy a more expensive home..." I'm not so sure that perception has changed. Sure, the magic escalator might be moving slower, but most people buy believing values are guaranteed to go up. Likely. But once you factor in the true total cost of the mortgage, taxes, repairs, etc. The profits are slim. Kids might be a justification for home ownership. But most other favor the Homeownership Industrial Complex, as well as gov. Let's not forget Big Inc who love it when you're locked into a mortage.

jpmattia 9y ago

> The collapse of that pyramid is exactly what happened, IMO, and it wouldn't have been possible without the sub-prime lending. imho, housing prices would have declined sooner. The valuation of houses was already wacky in 2001 by many measures. For example, look at the price-to-rent: https://3.bp.blogspot.com/-GVhHsBNhPfE/WP-6gJXNhTI/AAAAAAAAq6g/KfHIu3Mj86suoDIK-uM_EFCq3wEgVbZfgCLcB/s1600/PriceRentFeb2017.PNG https://3.bp.blogspot.com/-GVhHsBNhPfE/WP-6gJXNhTI/AAAAAAAAq... In 2001, prices were already at the level of the 1989 real-estate bubble: Older folks will remember the savings and loan scandal, which was the result of the 1989 bubble collapsing. The Fed thought it needed to compensate for the internet bubble collapsing, which was a large contributor to the ensuing mess in housing. It has to make us wonder: If compensating for the internet bubble lead to the housing bubble (and collapse), what will the result of compensating for the housing bubble be?

dood 9y ago
It's bubble-compensation all the way down.