2009 Predictions

[Rainelli]

that's really scary,I've heard and read a lot of predictions this year and there's a higher possibilities to come true.

[tpr2]

A different type of borrower was created in the states this time around though.

ninja: no income no job no assets.

[princess]

isnt the fundamental issue in the USA still the no-recourse situation? Surely its easier to walk away from a mortgage when the amount owing is more than the value of the home, when there is no recourse to the borrower? Or have i got it wrong?

Obama pumping money into the situation is just basically gifting a nice house to people who took out a big loan for a big house at the right time.

[tpr2]

Exactly princess.

So imagine someone with no income, no job and no assets buying a house which is worth less than what they owe on it.

There is no recourse to them if they hand the keys back and so they do.

The interesting thing that I wonder about is this though.... the banks are then writing those loans off as bad debts however they still own the property.

i.e 200k loan, property worth 100k perhaps, they write the loan off and post a big loss before getting some bail out money. They still own the house though...... I wonder what happens there?

[princess]

well they probably can't shift the house in a hurry, even for the $100k that its actually worth.

Isn't that a big time bomb waiting to happen too? What does a bank do when it has more property than cash?!!!

I remember reading about this somewhere else...

[Green Fish]

Why is this being discussed as a situation that is confined to the USA? NZ and Australia have precisely the same situation. The only difference is that most Godzone mortgages weren't chopped up like onions and sold around the world (ie, "securitised"). But the basic unpalatable fact remains: the Godzone banks created a huge property bubble by betting on the carry trade. The bubble has burst. So anyone who bought residential property between 2003 and 2007, and who still owns that property, is down by a six figure sum - which sum will not be recovered in their lifetime. In other words, they are financially ruined. That is a fact, which has to be allowed to flow through the economy, and through the property market.

As for the non-recourse situation, it's the same as the USA, in reality. Yes, the bank can go after the borrower for the shortfall after the mortgagee sale - but is the borrower going to care? I think not. The borrower, if they have any sense, will simply pull the plug and file for bankruptcy.

This is why the Godzone banks are sh8tting themselves.

[tpr2]

I'm not sure I agree greenfish.

Our lending practices are very different to the practices in the US.

The borrower in the US does not guarantee the loan personally like we do here.

NZ and OZ banks did not do NINJA loans.

You either had to prove income, assets or show permanency in a job.

Quite different.

I don't believe the banks here are shitting themselves either. I just spent a whole day with all the major banks and some of the smaller lenders and their sentiment about the market whilst not bullish was positive.

[jems]

Consumers are broke and going broker. Households of interrelated families are doubling and tripling up even with several employed members being under one roof. Basic costs of rent, mortgage payments, health care, food, utilities and taxes are too much to bear on stagnant and in some cases falling wages. In some areas of America, there are entire subdivisions of homes totally abandoned or existing with only a hand full of occupants. The millions thrown at lenders for new mortgages are not getting through to buyers, as there are fewer of them. We are witnessing system breakdown.

Municipalities and states are sinking into a spending, debt-ridden morass. It was reported today that 22 of 50 USA states are in serious budgetary trouble. California is one of those in terrible condition and Michigan is already technically broke as are many of her cities. Detroit will file bankruptcy in 2009 and there will many other surprises as well. There will be a cascade of bond defaults and the outcome will cap the ability of these cities, states and counties to borrow ever more.

[Raizo]

in other words the saving sheep have to have their money redistributed to the over loaded borrowers, for the "good of all"

this might be done by many years of HIGH, (not hyper) inflation

what i think might happen is after the markets reach a stable bottom that the central banks move from the 2% inflation targets they have had for years to 20% inflations targets. even at that high level it could take 5?-10? years, or longer, to unwind this mess

so anyone with term deposits will start getting good return again, ON PAPER, but inflation will be eating away at those returns faster than they grow

people who have mortgages will find their interest rates climbing to 25% while rents climb 15% and land values only climb 5-10%

and this for years and years and years

so as someone with money in the bank i will buy property as almost my only way to hedge against inflation but anyone who has to borrow money to buy property will end up going backwards