Is the banking crisis a housing crisis?
I think I shocked a few people when I spoke last month at Zoomf's 'Searching for Profits' seminar. In the midst of my shambolic presentation (compared with the other magnificent presenters) I blurted out that the current banking crisis was not necessarily reflective of a housing downturn - certainly not in the London market.
People seem to mix the two issues together and it can be quite easy to do so. The banks supported 'sub-prime' borrowing and got done for it. Sub-prime is automatically equated with housing mortgages, but the true definition of a sub-prime borrower is a lot broader than that. Anybody who doesn't have a prime credit rating is considered sub-prime. So you can still get a mastercard, just at a higher interest rate. You can still buy that car, it'll just cost you more money, and yes you can get financing, just at a higher interest and you will most certainly have to pay a bigger deposit than your prime rated counterpart and so on and so forth. The same principle applies to housing and the mortgage markets. This is not the first time we have suffered a 'credit crunch', there were very famous 'crunches' in the 1960's, 70's, and 80's
2 comments:
Exactly I don't really see it as a real estate problem just a lender problem that was done on stated income and people bought who really shouldn't have and really didn't qualify.
I do think the market got over inflated during 2002-2005 and that coupled with the lending crisis has resulted in this mess.
I imagine things are a little different in the US in the sense that what appears to be happening in the majority of cases is severe oversupply. Jonathan Miller argues that the oversupply in Miami's condo market will last for 5-10 years. Supply is strong but demand is weak. The same is true for Manchester and other cities in the North of England. Markets like London and Manhattan appear to be cushioned for the moment, I guess mainly because it's expensive to build in those cities - tighter planning regulations, geological boundaries as well as the sheer expense of living in those cities make things a little bit different than the rest of the country.
Post a Comment