The Housing Market Collapse: Exploring the Contributing Factors

The Housing Market Collapse tragic story of 2007 to 2009

The trouble with being in the rat race is that even if you win, you’re still a rat. Lily Tomlin

Unravelling Fortunes: Navigating the Housing Market Collapse

Updated June 2023

While the housing crisis of 2008-2009 might seem like a past event, its lessons could have averted later mistakes—such as the COVID crash, the 2018 market pullback, and the market turmoil following the Trump election. Drawing from historical knowledge, this article, which predates the housing crash, demonstrates how understanding history and mass psychology contributes to aligning market dynamics.

Another foreboding indication that the housing market downturn has just commenced rather than concluded is the significant decrease in the practice of obtaining home equity loans. This has been the means by which the majority of individuals have been sustaining their extravagant lifestyles and making purchases with funds they lack. With property values now declining, they are filled with apprehension, and the most concerning aspect is the substantial rise in their bills. To provide perspective, there was a 52% plummet in home equity loans during the third quarter. Total withdrawals went from 235.9 billion in the third quarter of 2005 to 113.5 billion in the same period of 2006.

Anticipating the Housing Meltdown Challenges

Anticipate this trend to further decline by the conclusion of this quarter. The situation is not showing signs of improvement as propagated by the media and leading economists; rather, it is deteriorating. Nevertheless, it is foreseeable that the housing sector might witness a brief resurgence, as the general populace is becoming increasingly uneasy. And, as commonly acknowledged, public sentiment is often misguided. Hence, mass psychology suggests that this industry will encounter a certain degree of uplift, and indeed, this is already underway. The impending collapse of the housing market is poised to catch a substantial number of individuals off guard.

Contribution of Late Mortgage Payments to the Housing Market Collapse

As per the Mortgage Bankers Association (MBA), there was a rise in late payments and foreclosures during the 3rd quarter. This trend is expected to persist, given that a significant number of adjustable mortgages are set to reset in the coming months. With these mortgage resets, monthly payments will notably increase. To compound the issue, individuals who are already lagging behind will face even higher rates due to their lowered credit ratings. It’s nearly certain that a Housing Market Collapse is underway, considering that the general public is becoming overly optimistic. Historical trends suggest that the masses tend to be on the wrong side of the markets in the long term.

Foreclosure figures are projected to surge next year, with rates potentially reaching new highs within the 3-6 year range. The most substantial increases are anticipated in previously red-hot markets like Florida, New York, Arizona, California, and others. Our advice, given for over two years to those owning multiple homes, was to sell one or more of them. Risk-takers were advised to sell their current homes and opt for renting. The MBA foresees a staggering 1.1 to 1.5 trillion dollars’ worth of loans resetting next year. Out of this sum, 700 million will be refinanced, while up to 800 million will adjust to less affordable rates. The real action is set to commence sometime in the following year. The escalation in foreclosures will inevitably contribute to the collapse of the housing market.

The following story aptly portrays the dire state of the housing market, a concern we have been cautioning our subscribers about for over two years.

Florida’s Overbuilt Condo Market Begins to Lose Steam

On a prime bayfront property near downtown Miami, the sales office for Onyx 2, an envisioned Waterview condominium where apartments were set to be priced between $500,000 and $2,000,000, is being overgrown by weeds that climb the steps. City officials report that 15 condo projects, comprising almost 1,900 units, have been formally withdrawn from the declining market. However, analysts contend that the figures are considerably higher when taking into account the surplus of overbuilt condo properties across Florida.

Yet, the “for sale” signs aren’t the sole indicators of a diminishing market. Statewide sales of existing condos experienced a substantial 31 per cent decline in October compared to the same month of the prior year, as stated by the Florida Association of Realtors. Median prices also saw a 2 per cent reduction. In Fort Lauderdale, sales diminished by 21 per cent in October. Even more telling, a Miami Beach waterfront one-bedroom property underwent a price reduction from an initial $445,000 to $400,000 and further down to $370,000 within a matter of weeks.

Inflation and the Impending Housing Market Collapse

The prevailing narrative is to assert that inflation is well-managed, yet this stands as one of the most significant falsehoods. Observe the remarkable price surge within the so-called “soft commodities” category, encompassing grains, sugar, coffee, and the like. These markets typically experience delayed acceleration, but when they do, there’s little room for doubt that inflation is beginning to gain momentum. A mere nudge in the right direction is all it takes for it to spiral out of control.

Economists had anticipated a recovery in wholesale prices after two consecutive months of substantial declines. However, the 2 per cent surge was four times larger than the 0.5 per cent increase they had predicted. Even when excluding the volatile energy and food prices, core inflation registered a notable 1.3 per cent advancement, marking the most significant increase in 26 years. Full Story  

The aforementioned narrative vividly showcases that inflation is far from being under control. It seems that mind-altering substances heavily influence the media and leading economists, or they are utterly neglectful of the situation.

Random Musings On Enriching the Global Community for the Benefit of All

We are frequently advised to make the world a better place for others. However, this notion is, once again, entirely baseless and falls into the category of hidden programmed desires for failure. Let’s closely examine this concept.

Would it not be more sensible to instruct us to first improve it for ourselves? If one is unsure about what’s right for oneself, how could they effectively contribute to making the world better for others? Thus, the logical starting point is self-improvement, followed by extending that perspective to consider the well-being of others. This is why the world often seems chaotic – individuals attempt to follow societal directives without a clear roadmap.

This concept is absurd, akin to advising someone not to attend school to learn how to become an auto mechanic. Instead, they should learn by helping outsiders with car issues. The inevitable result would either be a car explosion or a drastic 10-fold decrease in performance.

Therefore, as the New Year begins, focus on self-improvement. As we’ve often emphasised, some degree of self-centeredness is beneficial. If you cannot appreciate and care for yourself, why would anyone bother to attempt something you’ve clearly struggled with?

If you don’t know how to love yourself, then why should anyone even bother to attempt to do something you have failed so miserably in doing?  Sol Palha 

Conclusion

 

 

Synopsis: The 2008-2009 Housing Market Collapse and Its Lessons

The housing crash of 2008-2009, a pivotal event in global economic history, was the culmination of a series of interconnected factors. At its core, the crisis was precipitated by a speculative bubble in the U.S. housing market, fueled by the proliferation of risky subprime mortgages and the securitization of these loans into complex financial instruments.

The subprime mortgage boom was driven by a combination of low interest rates, lax lending standards, and a misguided belief that housing prices would continue to rise indefinitely. Financial institutions, incentivized by short-term profits, issued loans to borrowers with poor credit histories, often without fully understanding the risks involved. These subprime mortgages were then bundled into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which were sold to investors worldwide.

The bubble burst when housing prices fell in 2006, leading to mortgage defaults. The losses were magnified by the widespread use of leverage and the interconnectedness of global financial markets. Financial institutions found themselves holding assets worth far less than they had originally paid, leading to a crisis of confidence that quickly spread throughout the financial system.

Several measures could have been implemented to avoid getting caught up in such a crash. Firstly, stricter regulation and oversight of financial institutions could have prevented the reckless lending practices that fueled the bubble. This includes enforcing more rigorous credit checks and ensuring that borrowers fully understand the terms of their loans.

Enhancing Financial Safeguards and Personal Strategies

Secondly, the risks associated with mortgage-backed securities and other complex financial instruments could have been better managed. This could involve improving transparency in the securitization process, requiring financial institutions to retain a portion of the risk associated with the loans they originate, and implementing more robust risk management practices.

Lastly, individuals could have taken steps to protect themselves by avoiding speculative investments, maintaining a diversified portfolio, and not taking on more debt than they can afford to repay. While it’s impossible to predict the timing of a financial crisis, understanding the underlying risks and maintaining a prudent approach to investing can help mitigate the potential impact.

In conclusion, the housing crash of 2008-2009 was a complex event that resulted from a combination of risky lending practices, financial innovation, and regulatory failures. Avoiding a similar crisis in the future will require both institutional changes and individual vigilance.

Initially released on February 13, 2007, this article has seen updates over the years, with the most recent revision completed in June 2023.

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If worry were an effective weight-loss program, women would be invisible.

Nancy Drew