Originally Posted by
gloopy
Many would argue the core problem all along has been way, way too much credit. Excess credit leads to artificial boom times in the exact same manner as you or I taking a second mortgage out, maxing out all our credit cards and raiding our 401(k)'s to buy new sports cars and eat at 5 star stake houses every night and upgrade to that "Captain's House" on a zero money down subprime.
A problem created by insanely way too much credit can't likely be (permanently) solved by an injection of credit. It would, however, lead to a few back to back upbeat quarters. To many in power, that's as far over the horizon as they care to look.
He was referring to business credit, not the many types of personal credit. I agree that personal credit has probably saved the economy more than once. Housing was propped up for a few years by approving many who had no right to that type or size of loan. (Sub-prime) What we are seeing now is the prime market is being effected by the cratering of the sub-prime market. That is ppl like me that in reality cannot move because of all of the sub-prime foreclosures on the market. It has created a 12 month inventory of homes, that will take a long time to motor out of.
If it continues there is a real possibility of a prime bust as those that could afford their obligations are so far under than when required to move, opt to foreclose due to their debt outstanding to value ratio being way under water.
I know that if the housing market returned to normal increases of 2-4% per year, it would take seven years for me to get back to a 2005 purchase price. Add the money that I have stuck in the house and there is no return on investment for the better part of the next decade at best. Add to this the millions of lots and subdivisions that the banks are holding on to, it will be a long time before we see prices at levels of 2004-2005 much less 2007.
The housing market cratered due to over development and poor lending practices. It is nice that a 150K property has granite and anyone can move in for a buck, but what it did is create to much supply for the true demand.
It is simple supply side economics on the buyer and housing side of the equation. There is too much supply (Vacant property) because of the artificial demand created five years ago, and now not enough buyers to break the log jam when those "owners" bailed on their property when they lost jobs, or had their ARM's readjusted.
It will fix itself, but it cannot be fixed by some legislation. Only time and the recovery of jobs (demand) can fix it.