Is Today's U.S. Housing Bust Unique in Economy History?

This U.S. HOUSING BUST began in good economic times. Certain developments have contributed to the current BUST.

After the 2000 stock-market problems and the September 11, 2001, terrorist attacks, and amid fears of deflation, the Federal Reserve drove short-term interest rates to historic lows.

The nation's financial system was flooded with money, and cheap money inspired a surge in home-buying.

Home prices in many US areas began to hit the top in 2004. At the same time the Fed began to raise rates.

Home affordability started to decline in some markets.

On Wall Street the securitization of mortgages had become a huge profit center. The demand for new mortgage product continued. Mortgage brokers and loan originators were getting rich.

By 2005 the mortgage industry started with new affordable products that featured low TEASER RATES in the first years of a mortgage to keep monthly payments low.

Old fashioned down payment and debt-to-income requirements were not used much by lenders during this time.

Some new borrowers lied at STATED INCOME about their annual income and net worth. Mortgage brokers helped some of these people who got LIAR LOANS.

Greed was first, and then came some fraud. Some borrowers and lenders believed that ever-rising home prices would save them.

Borrowers began defaulting on loans. The value of some homes slumped below the amount of debt. Then the home and property owners were in SHORT PAY situations.

Delinquencies, defaults and foreclosures hit the housing market hard. This is unmatched in US economy history. Past due loans and foreclosure rates have been pushed to all time highs.

What's the future?
Some believe that pressure on home prices from foreclosures may decrease in the latter part of 2008? What do you think?

Posted by Harrison K. Long, Explore Properties Group, July 18, 2008
Source: Barron's Newsletter