Property Crisis Or Property Correction?

[JohnySam00]

High risk (sub prime) mortgages were given to people with no income, no jobs and no assets. Are we in recession? How did the current "crisis" come about. Mortgages were secured simply against the value of the property. As property prices were rising the banks thought this was a secure bet. Inevitably these new property owners defaulted on their mortgages causing the banks to repossess the properties leaving them with a debt and a property, the properties are then auctioned off to cover the debt (or as close to it as possible) leaving a surplus of cheaper properties and falling house prices.

This starts a cycle of negative equity leaving many disillusioned property owners with a financial noose around their necks.As banks across the globe are dependent on each other, a problem in a large economy will trigger similar effects internationally. We have experienced a property boom for over 10 years, which everyone will agree was completely unsustainable.

The tightening up of mortgage lending criteria may have come too late for many but it is long overdue and really not that surprising.If we look at economic patterns they are demonstrated by regular dips and peaks, the peaks being what we have recently experienced with rocketing property prices and a general consumer confidence that was never going to last. Everywhere you look there was building but not necessarily the demand. In an economy where the supply outweighs the demand there is always going to be a downturn or dip.

We have entered the dip and are seeing a correction in the over inflated property prices as well as a slow down in construction to balance supply with demand. As our world becomes smaller with increasing levels and methods of communication these dips become shorter, making an economic recovery period quicker and avoiding recession.

[badmomma]

Well thank you for that post it opened my eyes. I hadn't really
thought of things quite like that. You must have a bit of knowledge
about the housing market. I will look forward to see what else you
have to share with us in the future.