The main stream media is way behind on this. When mortgage fraud is advertised on Craigslist we have a problem. When someone making $40K a year buys a $500K home we have a problem. It goes on an on.

The housing bust is rolling down hill and gaining momentum. I think it is much worse than we think. I believe Dr. Shiller is correct. A drop of >25% is probable. But this is necessary.

Joseph Dobbs, Charlotte, NC

Cheap credit and undisciplined lending practices is not the fault of the consumer rather it is the fault of the central bank, Federal Reserve. This housing crisis is done on purpose to benefit the few wealthy preying on consumers who were naturally reacting to the market. The reason foreclosures will rise is because real income is not growing at the rate of inflation. Costs of home mainly skyrocketed due to the weakness of the dollar. The real danger is loss of productivity/manufacturing and the value of the dollar crashing which is happening now. When the dollar falls, people lose their homes, banks come in buy real assets, ie real estate for pennies on the dollar essentially destroying the middle class. Never be naive to think that homeowners are going to get bailed out rather, the wealthiest investors. And you can all thank the unconstitutional federal reserve bank.

John, Arcadia,

I am in California and there is still a lot of mortgage fraud happening from what I see as an escrow officer.. Unfortunately, no one wants to go after the illegal activity. Throw some people in jail and watch the fraud slow down.

Also, I believe that a good many of the foreclosures could be stopped if lenders would renegociate their loans to the people in financial trouble. They can add the funds that are in the rears to the end of the loan, give them the fixed rate that they should have received, and extend the loan another 10 years, so that a 30 year becomes a 40 year. I believe many would be able to survive in their homes if that was done.

Diane, Bakersfield, USA/CA

I sent this last night, but it may have been lost in Cyberspace:


As pessimistic as this article seems, the views expressed may be deemed conservative in the months and years to come, with the benefit of hindsight. The Housing Bubble has only begun to burst in both the United States and Britain. Sir John Templeton warned more than two years ago of the coming housing crash, in which housing prices might sink as much as 50 percent. Indeed, as foreclosures increase and housing sales plummet, many Americans are watching their life savings and significant portions of their wealth evaporate.

Mr. Bawden is correct when he says that consumer spending accounts for approximately two-thirds of the American economy; and that as the housing meltdown impacts consumers’ confidence, they will be less likely to borrow and spend. And the ripple effects in the United States and worldwide are likely to be dramatic. We have already seen that when America sneezes, European investors catch colds in this ever-expanding global marketplace.

As consumer spending declines, sales by American automakers are apt to be hit harder than they have been. Ford has been forced to sell Aston Martin to raise much-needed cash, and it may have to unload Volvo, Jaguar and Land Rover to stem the tide. Even that may not be enough to forestall bankruptcy. Close on Ford’s heels are GM and Chrysler, which Daimler wisely jettisoned recently. If American housing and auto sales plummet, the impact on other sectors of the U.S. and global economies is apt to be dramatic too.

Years from now, it may be written that the American housing collapse morphed into a global crash; and that the central banks, including America’s Federal Reserve Board, were shown to be paper tigers that had far less control and influence over economic events worldwide than was ever assumed. If this happens, it may be unlike anything that has occurred since the Great Depression; and the perfect storm will have overwhelmed the central banks as well. Chilling thoughts to be sure, but by no means farfetched. What are missing from this scenario are other terrorist attacks, perhaps worse than 9/11, which might throw all economic forecasts to the wind.

But that’s just my opinion, and I might be wrong.

Timothy D. Naegele
Attorney at Law
www.naegele.com

Timothy D. Naegele, Malibu, California/USA

The people who line up for adjustable rate mortgages and then use their house like a never-ending cash machine don't know what the word "liquidity" means. They might say, if pressed, that it has something to do with beer.

This entire scenario has two major causes:
1. Fiduciary malfeasance on the part of some mortgage lenders
2. Greed and a tragic ignorance on the part of unqualified mortgage borrowers
3. TV commercials pushing schemes to get rich quick by "flipping" houses-- that is, buying them with low-interest adjustable rate mortgages, making some cosmetic changes in the houses, and then reselling them at grossly inflated prices within a matter of weeks.

Martha , Miami, Florida, USA

We are told that the UK is unlikely to experience a significant reduction in property prices. We told that employment is high and that supply is limited. What about Self Certification mortgages made against over inflated incomes. We are not told that 8% of the UK mortgage market is considered to be subprime.

We have been told that growth will slow next year. What happens if growth slows more than expected.

The UK economy is on a knife edge but property prices inflation is still very high.

Let us hope for the best and plan for a BUST!!!

JL, bristol,

I think it is an extraordinary naive industry to make loans to people based on "stated" income and not expect some level of fraud. This is a classic example of increased risk taking to generate revenues. Unfortunately, we all have to endure the morning after hangover. American real estate valuations have risen significantly in a short period of time and exceeded reasonable levels due to overly liberal underwriting standards and too much liquidity. Common sense dictates that tighter standards and less liquidity will result in lower prices. I would expect homeowners in the UK to understand this as much as their American counterparts.

Michael Brown, Little Rock, Arkansas

I'm now 40 and have seen this cycle twice in my lifetime.
I expect to see it twice more. When I hear confident sales patter then I also hear warning bells. When I see adverts (in the US last year) showing how 15 year olds were playing the property market and making a fortune - "so you can too" then I know that a market is heading for a crash.

Market experts are also blined by their own greed, denial or sheer heard mentality. To not do, on any given day, that which makes money is seen as foolish, until the market suddenly unwindes.

Steve, zürich, Switzerland

Bernard,

How would you assess the 'economic value' of a single family residence?

Do we look to the comparable rentals in a given area to determine a lowest possible value for a purchased home based on the cost of a mortgage being similar to the rental outlay and taking in to account the tax benefits to owning a home in the U.S.?

Jeff, Sarasota, FL

Bernard, Huntington, NY.
I agree with the basis of your statement although your timelines appear to be a little skewed. There has already been a retraction in the housing industry. American homebuilders are on their knees trying to offload over-valued inventory. The consumer is a little behind the curve but consumer spending is going to slow over the next year as credit becomes harder to get and Joe Public wake up to the fact that home equity wealth is a subjective number and doesn't put food on the table. The trouble with the "miracle economy" is that debt has spiraled and people have stopped saving. Horror stories of bright sparks paying their mortgages on credit cards is an indicator of the serious situation over stretched western economies find themselves in.This should put an end to the idea that house prices only ever go up and it's different this time.

Ed, London,

Pity that S & P did,nt wake up to what was happening about 18 months ago! If I remember rightly they and Moody,s were gaily dishing out triple A ratings to the Wall street slicers and dicers without any qualms whatsoever. I wonder if this is an attempt to minimise the effects of the forthcoming class actions which will shortly be raining down upon them all?

gordon, auckland, nz

how do you break the spiralling down? If a house's value is based on a comparative sale in a local area it seems obvious that this is a market value and not necessarily an economic value. when the market value and the economic value are aprroximately the same would seem to be the answer. wouldn't this put all mortgage loans at or below the asset value. who can repay/sell at a loss -- i would presume very few homeowners. if we have a long way to go in the course of this crisis we must prepare for a truth that the housing industry and its related industries must be heading for a severe retraction along with a consumer meltdown no matter what interest rate adjustment we receive from the federal bank. i am waiting to hear of a 401/ira decay in balances or savings rate that would presage the needed withdrawals to cover the present loss of wealth/spending power.

bernard, huntington, ny

"...We are not halfway through this crisis yet...."


Mmmm, it hasn't even warmed up yet.

Pete Balchin, Solicitor , Bristol, UK