Housing Blogs

In the era of 100% financing, speculation was widespread. Why not, speculators had nothing to lose other than their credit score, and if prices had gone up, they would have reaped a huge windfall. We have documented case after case of this behavior right here on this blog. Are we flagellating the equine after it has already perished? Perhaps, but until this behavior is seen for what it was, lenders will not learn their lessons, and they will do it all over again. Realistically, the only thing that could save housing prices would be a return of 100% financing and the elimination of lending standards like we saw during the bubble. There is only one problem with that: people cannot afford the payments — They have proven that much. The continued use of 100% financing through 2007 was the only thing delaying the crash. Now that the FED is lowering interest rates, they are hoping this will translate into lower borrowing costs and help knife-catchers finance the huge sums necessary to afford today’s pricing and slow the decent of prices. There is only one problem with that: as the FED lowers interest rates it increases inflation expectations, and mortgage interest rates go up. Hmmm… It is really quite a quandary….
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