Potential for a series of large scale citizen defaults?

SugarHigh

There was a discussion on NPR about "Occupy student debt/loans" also known as "Mass Effect". It's basically a campaign to try and convince millions of graduates to default on their student loans. It doesn't seem to have much traction at the moment but it would be interesting if it succeeded.

If there was a large scale default I'm sure it would give a lot of traction to the idea of a mortgage default movement in Ireland. What other large scale defaults are possible and how likely do think any of them are to occur?

I'm curious what would happen to these individuals credit ratings. Wjen so many people have bad credit ratings would the rating required to get credit drop? This would minimize the consequences of having a bad rating.

JustAddWater

SugarHigh wrote: »

It's basically a campaign to try and convince millions of graduates to default on their student loans.

Honestly, it's morally wrong and truthfully, discraseful to start a campaign to not pay back loans just because....

Are these guys for real? What do these deluded people think will happen? It'll make things worse and people or businesses that genuily need the money, they won't get it because if the risks

It'll make things a lot worse, not better

oscarBravo

I'd love to hear some actual reasoning behind idiotic ideas like this.

If every Irish person defaulted on his/her mortgage, that would have the overwhelmingly positive effect of... what?

Seriously - is there anything other than rabble rousing and underpants-gnome logic behind this?

thebman

Well part of the logic on the mortgages side is that they are bad debts. I think many Irish mortgages shouldn't be paid back on the logic that the banks should be forced to realise the loses on loans they gave out that they shouldn't have.

This frees up these people to spend the money they would have spent on paying back the mortgage in the economy and cleans up the banks books of their bad loans which should make them be seen as a better investment opportunity.

These movements are underpants gnome b*ll*cks though. They haven't the balls to do it themselves but think they will be safe in numbers.

nesf

thebman wrote: »

Well part of the logic on the mortgages side is that they are bad debts. I think many Irish mortgages shouldn't be paid back on the logic that the banks should be forced to realise the loses on loans they gave out that they shouldn't have.

But since those banks are State supported this amounts to a direct bailout of said mortgage holders by the Irish people's pockets.

JustAddWater

JustAddWater wrote: »

Honestly, it's morally wrong and truthfully, discraseful to start a campaign to not pay back loans just because....

Are these guys for real? What do these deluded people think will happen? It'll make things worse and people or businesses that genuily need the money, they won't get it because if the risks

It'll make things a lot worse, not better

Usury is morally wrong..

oscarBravo

Deleted User wrote: »

Usury is morally wrong..

You've never borrowed money, and never will?

nesf

oscarBravo wrote: »

You've never borrowed money, and never will?

Or received interest on a deposit for that matter.

Permabear

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nesf

Permabear wrote: »

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That's more of a US problem than an Irish one. It's relatively unusual to find non-teaching staff in academic jobs in Irish universities. Happens occasionally sure (usually with department heads) but all the tenured guys I know teach as much hours now as they used to before tenure.

ronano

was it on a podcast op? if so which?

Permabear

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nesf

Permabear wrote: »

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Bah, I thought some muppets had set up a mirror movement in Ireland and that was what was being discussed.

Permabear

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HellFireClub

SugarHigh wrote: »

There was a discussion on NPR about "Occupy student debt/loans" also known as "Mass Effect". It's basically a campaign to try and convince millions of graduates to default on their student loans. It doesn't seem to have much traction at the moment but it would be interesting if it succeeded.

If there was a large scale default I'm sure it would give a lot of traction to the idea of a mortgage default movement in Ireland. What other large scale defaults are possible and how likely do think any of them are to occur?

I'm curious what would happen to these individuals credit ratings. Wjen so many people have bad credit ratings would the rating required to get credit drop? This would minimize the consequences of having a bad rating.

The massive default already taking place, that nobobdy is talking about is the credit default that is associated with the closure of small businesses in Ireland...

http://www.insolvencyjournal.ie/home_more_details/12-01-03/Over_16_increase_in_company_failures_over_the_last_two_years.aspx

Every single one of these businesses leaves behind a huge credit mess, owed to Revenue, Local Authorities, Banks, employee's, direct suppliers who largely unsecured creditors, most of which is unrecoverable I'd imagine. Then the bad debts have a knock on effect to the businesses that have been caught up in a closure, who have supplied the business that has been closed, etc and on it continues...

Valmont

nesf wrote: »

Bah, I thought some muppets had set up a mirror movement in Ireland and that was what was being discussed.

Ah, you've jinxed us now. The thread will be started one week from today:

"Occupy Registration Fees"

Tigger

HellFireClub wrote: »

The massive default already taking place, that nobobdy is talking about is the credit default that is associated with the closure of small businesses in Ireland...

http://www.insolvencyjournal.ie/home_more_details/12-01-03/Over_16_increase_in_company_failures_over_the_last_two_years.aspx

Every single one of these businesses leaves behind a huge credit mess, owed to Revenue, Local Authorities, Banks, employee's, direct suppliers who largely unsecured creditors, most of which is unrecoverable I'd imagine. Then the bad debts have a knock on effect to the businesses that have been caught up in a closure, who have supplied the business that has been closed, etc and on it continues...

Each of these that were companies, but not all small businesses are companies many are partnerships and sole traders

thebman

nesf wrote: »

But since those banks are State supported this amounts to a direct bailout of said mortgage holders by the Irish people's pockets.

The person should lose their house though and the bank should write off the loan, both parties walk away from the idiotic contract that neither party should have agreed to essentially.

oscarBravo

thebman wrote: »

The person should lose their house though and the bank should write off the loan, both parties walk away from the idiotic contract that neither party should have agreed to essentially.

...and the bank ends up owning thousands of empty houses that are worth less than the amount owed on them, flooding the market and dragging prices way down, trapping even more people in negative equity.

Um, yay?

thebman

oscarBravo wrote: »

...and the bank ends up owning thousands of empty houses that are worth less than the amount owed on them, flooding the market and dragging prices way down, trapping even more people in negative equity.

Um, yay?

That isn't a problem unless you need to move really. We are going to have to sell the oversupply at some point anyway.

And we are going to have to deal with the loans that can't be paid back, those people are bankrupt. You'd rather leave them in poverty with no way out than reduce the price of houses most people aren't trying to sell in the first place?

oscarBravo

thebman wrote: »

That isn't a problem unless you need to move really. We are going to have to sell the oversupply at some point anyway.

Right, but that's not an argument for artifically depressing the market, which a glut of suddenly-empty houses would do.

And we are going to have to deal with the loans that can't be paid back, those people are bankrupt. You'd rather leave them in poverty with no way out than reduce the price of houses most people aren't trying to sell in the first place?

Personal bankruptcy is a separate reform issue. My concern is with the idea of taking bad loans off the banks' books - I don't see any great advantage in replacing those bad loans with empty houses.

Hotblack Desiato

thebman wrote: »

And we are going to have to deal with the loans that can't be paid back, those people are bankrupt.

We will, but what is being talked about is people who can, and are, paying back their loans stopping paying back their loans to (a) stick it to 'The Man' :rolleyes: and (b) hope to get something for nothing.

thebman

oscarBravo wrote: »

Right, but that's not an argument for artifically depressing the market, which a glut of suddenly-empty houses would do.

It is a mistake to call it artificially depressing the market when the properties are being kept off the market by current bankruptcy laws and were bought at artificial prices at which people should never have been granted mortgages.

Personal bankruptcy is a separate reform issue. My concern is with the idea of taking bad loans off the banks' books - I don't see any great advantage in replacing those bad loans with empty houses.

I don't see the point in keeping bad loans on banks books. How much of our banks resources are being poured into trying to continue to recover payment on loans they know and the people with them know they cannot repay? When do you think banks should realise these losses?

How many people are holding off on buying houses because they know there is a massive surplus of property out there and more to come onto the market from people that cannot pay?

Mortgage lending is already 95% down on 2006 levels. We essentially don't have a property market at the moment because of the massive oversupply and Irish banks not being able to lend to people.
http://www.ft.com/intl/cms/s/0/cff68cf6-3601-11e1-9f98-00144feabdc0.html

oscarBravo

thebman wrote: »

It is a mistake to call it artificially depressing the market when the properties are being kept off the market by current bankruptcy laws and were bought at artificial prices at which people should never have been granted mortgages.

I reckon that current prices are relatively realistic, so a glut of empty houses would represent an artificial depression of the market.

I don't see the point in keeping bad loans on banks books.

And I don't see the point in suddenly replacing bad loans with vacant houses that are worth less than those loans.

How much of our banks resources are being poured into trying to continue to recover payment on loans they know and the people with them know they cannot repay? When do you think banks should realise these losses?

When they can't avoid it any longer, and no sooner. There's no good business reason for converting a dubious asset into a concrete loss sooner than you absolutely have to.

There's also the moral hazard implicit in allowing someone to walk away from negative equity - essentially a personal balance sheet in the red - by transferring that liability to a bank. That's a factor that needs to be weighed up carefully.

SupaNova

oscarBravo wrote: »

I reckon that current prices are relatively realistic, so a glut of empty houses would represent an artificial depression of the market.

This is completely backwards, if prices were realistic there would not be a glut of empty houses. Given that there are a glut of empty houses would actually signal that prices are artificially high.

And I don't see the point in suddenly replacing bad loans with vacant houses that are worth less than those loans. When they can't avoid it any longer, and no sooner. There's no good business reason for converting a dubious asset into a concrete loss sooner than you absolutely have to.

Agree with this part.

desertcircus

oscarBravo wrote: »

thebman wrote: »

It is a mistake to call it artificially depressing the market when the properties are being kept off the market by current bankruptcy laws and were bought at artificial prices at which people should never have been granted mortgages.

I reckon that current prices are relatively realistic, so a glut of empty houses would represent an artificial depression of the market.

When there are ninety thousand houses listed for sale on Daft (and God knows how many being kept off the market by Nama) and less than fifteen thousand mortgages a year being approved, that means current prices are hallucinatory. We don't have a functional housing market, and we won't until the average home has a price the average worker can get a mortgage for.

oscarBravo

SupaNova wrote: »

This is completely backwards, if prices were realistic there would not be a glut of empty houses. Given that there are a glut of empty houses would actually signal that prices are artificially high.

desertcircus wrote: »

When there are ninety thousand houses listed for sale on Daft (and God knows how many being kept off the market by Nama) and less than fifteen thousand mortgages a year being approved, that means current prices are hallucinatory. We don't have a functional housing market, and we won't until the average home has a price the average worker can get a mortgage for.

The underlying premise is that whatever price a house gets sold for is a realistic price. By that logic, the shoeboxes that were selling for insanely high amounts at the peak of the boom were realistically priced.

There are empty houses because people can't afford to buy them. That doesn't mean that prices are unrealistically high; it means there's a recession happening and people can't get access to credit. Similarly, the fact that people were buying cookie-cutter shoeboxes off the plans five or six years ago didn't mean that prices were too low; it meant that people had too much access to credit.

I haven't time to dig up anything longer-term than the 1996-2011 price index, but have a look at this:



I can only extrapolate from the two or three years at the start of the graph, but it's clear that prices were unrealistically high for several years. My point is that prices now are back somewhat in line with the growth trend of the pre-bubble era. That's my idea of realistic.

Dumping properties on the market will drag prices way below that trend. I don't see how that's a good thing.

desertcircus

oscarBravo wrote: »

SupaNova wrote: »

This is completely backwards, if prices were realistic there would not be a glut of empty houses. Given that there are a glut of empty houses would actually signal that prices are artificially high.

desertcircus wrote: »

When there are ninety thousand houses listed for sale on Daft (and God knows how many being kept off the market by Nama) and less than fifteen thousand mortgages a year being approved, that means current prices are hallucinatory. We don't have a functional housing market, and we won't until the average home has a price the average worker can get a mortgage for.

The underlying premise is that whatever price a house gets sold for is a realistic price. By that logic, the shoeboxes that were selling for insanely high amounts at the peak of the boom were realistically priced.

There are empty houses because people can't afford to buy them. That doesn't mean that prices are unrealistically high; it means there's a recession happening and people can't get access to credit. Similarly, the fact that people were buying cookie-cutter shoeboxes off the plans five or six years ago didn't mean that prices were too low; it meant that people had too much access to credit.

I haven't time to dig up anything longer-term than the 1996-2011 price index, but have a look at this:



I can only extrapolate from the two or three years at the start of the graph, but it's clear that prices were unrealistically high for several years. My point is that prices now are back somewhat in line with the growth trend of the pre-bubble era. That's my idea of realistic.

Dumping properties on the market will drag prices way below that trend. I don't see how that's a good thing.

Prices aren't set at realistic levels if nobody is willing and able to buy. "Realistic" to me would imply that people with decent jobs would be able to afford to buy decent houses.

oscarBravo

desertcircus wrote: »

Prices aren't set at realistic levels if nobody is willing and able to buy. "Realistic" to me would imply that people with decent jobs would be able to afford to buy decent houses.

So prices were realistic at the start of 2007, because people were able to afford them?

SupaNova

It’s a pointless exercise looking at a general trend line, and saying what price houses should be based on your projection of that trend line. If there was no credit boom and a glut of houses it might be a reasonable way decide in what range the price should be and what is reasonable. But since there was a credit fueled boom that created an oversupply, you're saying that an increase in supply should not affect the price.

oscarBravo

SupaNova wrote: »

It’s a pointless exercise looking at a general trend line, and saying what price houses should be based on your projection of that trend line.

I'm open to suggestions as to how else you'd decide what a realistic average house price should be, correcting for the boom. House prices trended more-or-less linearly prior to the boom.

For starters, are we agreed that prices during the boom were unrealistically high, despite the fact that people were able to pay them - thereby ruling out free market rates as a definition of realistic?

And assuming we've agreed that prices can be unrealistically high, doesn't it therefore follow that prices can be unrealistically low, despite the fact that people are still unable to pay them?

SupaNova

oscarBravo wrote: »

I'm open to suggestions as to how else you'd decide what a realistic average house price should be, correcting for the boom. House prices trended more-or-less linearly prior to the boom.

You are still looking at an aggregate statistic that doesn't account for supply. Not all that new supply is created equally, how does a house in a ghost estate in Leitrim or elsewhere fit in with an extended trend line?

For starters, are we agreed that prices during the boom were unrealistically high, despite the fact that people were able to pay them - thereby ruling out free market rates as a definition of realistic?

And assuming we've agreed that prices can be unrealistically high, doesn't it therefore follow that prices can be unrealistically low, despite the fact that people are still unable to pay them?

Just because the market rate during the boom was unrealistic, doesn't mean it is unrealistic during the bust. Prices were unrealistically high during the boom because the artificially cheap credit and speculation driving prices was not sustainable.

Your belief that these "low prices" are unrealistic has nothing to do with an oversupply and a sustained credit contraction, nothing to do with supply and demand, but your projection of a trend line as if the bubble never happened.

FreudianSlippers

thebman wrote: »

Well part of the logic on the mortgages side is that they are bad debts. I think many Irish mortgages shouldn't be paid back on the logic that the banks should be forced to realise the loses on loans they gave out that they shouldn't have.

By that logic, shouldn't people be forced to realise the loss on loans they shouldn't have taken? Nobody forced them to buy homes they couldn't afford.

I'm wondering how the people who advocate destroying the banking sector would view defaults etc if they thought what if it was the local shop or their family that gave them the loans? It seems easy to not give a shït about a faceless corporation.

FreudianSlippers

Permabear wrote: »

This post had been deleted.

No, he said it was on NPR, which is National Public Radio in the USA. [/Quote]
Great iPhone app too!

I just wanted to add that bad credit scores in the us is much worse than here too. Defaulting on a student loan may make it very difficult to get the simplest of things; they check your credit score for the smallest things in the US

oscarBravo

SupaNova wrote: »

You are still looking at an aggregate statistic that doesn't account for supply. Not all that new supply is created equally, how does a house in a ghost estate in Leitrim or elsewhere fit in with an extended trend line?

And you're still implicitly preaching the mantra that supply and demand are the only factors that determine what's a realistic price, which means that either (a) house prices were realistic in early 2007, or (b) you believe that prices can be unrealistically high but not unrealistically low.

Just because the market rate during the boom was unrealistic, doesn't mean it is unrealistic during the bust. Prices were unrealistically high during the boom because the artificially cheap credit and speculation driving prices was not sustainable.

I guess it's option (b), so - the market is wrong if it prices high, but infallible if it prices low.

I'm still not clear why you accept that artificially cheap credit and speculation can drive prices unrealistically high, but can't seem to grasp the concept that a withdrawal of credit and the dumping of an oversupply onto the market could possibly drive prices unrealistically low.

Your belief that these "low prices" are unrealistic has nothing to do with an oversupply and a sustained credit contraction, nothing to do with supply and demand, but your projection of a trend line as if the bubble never happened.

I'm not sure where you're getting that from. First, I didn't say that prices were unrealistically low now, but that they're probably about back on course given the pre-bubble trend, and that dumping a huge number of properties onto the market would drive prices to a level that would be unrealistically low. Second, there has been a sustained credit contraction, and I mentioned that it was a factor in influencing house prices similarly to how an oversupply of credit was a factor in driving them high; so why you think I don't believe it's a factor is beyond me.

And finally, I'm projecting a pre-bubble trend line because it's one objective measure of where house prices might have been without a bubble, and therefore a candidate for an objective measure of what realistic house prices ought to be, ceteris paribus. Your counter-argument seems to be that the market price is the objective measure of what's realistic, except when it's unrealistic, which is only when it's too high.

SupaNova

oscarBravo wrote: »

And you're still implicitly preaching the mantra that supply and demand are the only factors that determine what's a realistic price, which means that either (a) house prices were realistic in early 2007, or (b) you believe that prices can be unrealistically high but not unrealistically low. I guess it's option (b), so - the market is wrong if it prices high, but infallible if it prices low.

Prices in 2007 were based on artificial demand and only sustainable under exponentially increasing cheap credit. No artificial market interventions are needed for a credit contraction. The contraction of credit is not artificial. Nice straw-manning though.

And finally, I'm projecting a pre-bubble trend line because it's one objective measure of where house prices might have been without a bubble, and therefore a candidate for an objective measure of what realistic house prices ought to be [Edit: if there never was a bubble], ceteris paribus.

Lol.

oscarBravo

Question asked, question answered: the market is broken when prices are high, and infallible when prices are low.

Nice talking with you.

SupaNova

oscarBravo wrote: »

Question asked, question answered: the market is broken when prices are high, and infallible when prices are low.

Keep up the strawman.

Nice talking with you.

You too.

KindOfIrish

oscarBravo wrote: »

...and the bank ends up owning thousands of empty houses that are worth less than the amount owed on them, flooding the market and dragging prices way down, trapping even more people in negative equity.

Um, yay?

Say, I've taken €300,000 mortgage for a house that cost 150,000 max. Will i care for others people finance situation? :eek:

SupaNova

KindOfIrish wrote: »

Say, I've taken €300,000 mortgage for a house that cost 150,000 max. Will i care for others people finance situation? :eek:

No you should try sell it for 400k, so you can bring average house prices in line what they would have been based on a projection of a general trend line.

FreudianSlippers

KindOfIrish wrote: »

Say, I've taken €300,000 mortgage for a house that cost 150,000 max. Will i care for others people finance situation? :eek:

Well what do you mean? Clearly the house either cost €300,000 or else you took out a loan that was worth twice the value of the property. Either way, that's your problem; if you were able to afford the €300,000 when you purchased (and I mean truly afford, that is no more than 36% of your salary should go to debt repayments including mortgage. The general figure after credit cards and car payments and the like is 28% usually) then your house has a real value to you of €300,000.

That is, of course, unless you were into some property flipping game or else you are desperate to move? Will the house ever reach €300,000 again? Who knows... but I think the prices are depressed at the moment.

SupaNova

I think he means the house would now cost 150k, based on what similar houses are now selling for.

oscarBravo

SupaNova wrote: »

I think he means the house would now cost 150k, based on what similar houses are now selling for.

How would he be better off if thousands of houses were dumped on the market and his house was now worth €75k?

SupaNova

oscarBravo wrote: »

How would he be better off if thousands of houses were dumped on the market and his house was now worth €75k?

You seem to have an infatuation with using the word dumped which helps frame the argument a certain way, then you go on to completely exaggerate, never seen you do that before:rolleyes:. And then I've never argued that someone in the situation you describe would benefit.

What i have said is that your projection of an average price trend is useless given we've had a housing bubble. The fact you haven't taken issue with my edit of your statement which shows how useless that position is, suggests you have retreated on that point.

And finally, I'm projecting a pre-bubble trend line because it's one objective measure of where house prices might have been without a bubble, and therefore a candidate for an objective measure of what realistic house prices ought to be [Edit: if there never was a bubble], ceteris paribus.

You also never answered my other question as it also shows how this analysis comes up short.

You are still looking at an aggregate statistic that doesn't account for supply. Not all that new supply is created equally, how does a house in a ghost estate in Leitrim or elsewhere fit in with an extended trend line?

Permabear

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oscarBravo

SupaNova wrote: »

This post had been deleted.

The thread is about large-scale mortgage default, which would involve large-scale repossessions, which would result in banks having a glut of houses on their hands, which they would want to sell, since a bank's business model isn't built on owning empty houses.

If you have a problem with the terminology, explain how it's not an accurate reflection of what we're talking about.

And then I've never argued that someone in the situation you describe would benefit.

The person who posited the question in the first place asked why he should care about the effect it would have on other people. I was pointing out that it would have a negative impact on his situation also.

What i have said is that your projection of an average price trend is useless given we've had a housing bubble. The fact you haven't taken issue with my edit of your statement which shows how useless that position is, suggests you have retreated on that point.

That's because - presumably for reasons of your own which I'm not privy to - you're going to some considerable lengths to avoid understanding my point. I can't force you to understand my point, particularly if my point doesn't fit your internal narrative, but I'll reiterate it:

We're talking about what is a realistic average house price at the moment, and how current prices compare to a putative realistic value. My idea of what's realistic is to continue the trend that held steady for decades prior to the housing bubble. Your is apparently to claim that every upward price movement from this trend is artificial, and every downward movement from it is natural. You don't trouble to explain this dichotomy; you just bang on about straw men when I point it out.

If you have a useful objective measure of what should be a realistic average house price right now, I'd be interested to hear it. If you don't, I'm not sure why you feel the need to attack mine.

You also never answered my other question as it also shows how this analysis comes up short.

I get tired of arguing with people who go to lengths to miss my point.

Permabear wrote: »

He wouldn't be better off, obviously. However, a newlywed couple currently in the market for their first home would be significantly better off if they could buy that home for $75,000.

Yes. Markets where prices are artificially high suit sellers. Markets where prices are artificially low suit buyers. Markets where prices are realistic suit both.

Essentially, that's what the argument boils down to. Should the government strive to protect those who bought during the boom, and the banks that lent them the money, or should they let prices fall to a market-clearing level, thus helping those who want to buy homes now?

Well, no. That's almost nothing to do with the argument, which is about whether borrowers should default en masse. It's really nothing to do with government policy.

I'm arguing that there's no compelling upside that I can see for the economy in such a movement. Singling out one group of people - those who don't currently own homes and would like to buy - is rather completely missing the point.

SupaNova

oscarBravo wrote: »

Your is apparently to claim that every upward price movement from this trend is artificial, and every downward movement from it is natural.

No this is another strawman to go with the others. I have never said every upward price movement is artificial and every downward movement is natural, nor have i said every high price is artificial. Prices can change upwards or downwards in response to changes in natural conditions, this is what is realistic, those conditions being supply and demand. Prices during the boom were based on the artificial conditions of cheap credit and a speculative bubble. The lack of credit available now is very natural consequence of a credit bubble, it is not artificial.

oscarBravo

SupaNova wrote: »

Prices can change upwards or downwards in response to changes in natural conditions, this is what is realistic, those conditions being supply and demand. Prices during the boom were based on the artificial conditions of cheap credit and a speculative bubble. The lack of credit available now is very natural consequence of a credit bubble, it is not artificial.

Abundant cheap credit is an artificial condition; scarcity of credit is a natural condition. A speculative bubble is an artificial condition; the aftermath of a burst bubble is a natural condition.

I guess as long as you get to decide what's natural and artificial, you get to decide which prices are realistic. It's kind of funny that you accuse me of trying to frame the debate while you're doing it, though.

SupaNova

oscarBravo wrote: »

Abundant cheap credit is an artificial condition; scarcity of credit is a natural condition. A speculative bubble is an artificial condition; the aftermath of a burst bubble is a natural condition.

Cheap credit can be a natural condition or an artificial condition, natural if brought about by saving, thus increasing a banks supply of loanable funds and lowering interest rates. Artificial expansion accompanied with tax incentives cause speculative bubbles, but once that artificial expansion of credit is no longer expanded, the resultant lack of credit is very real, it doesn't need to be brought about by government or central bank measures.

K-9

SupaNova wrote: »

No this is another strawman to go with the others. I have never said every upward price movement is artificial and every downward movement is natural, nor have i said every high price is artificial. Prices can change upwards or downwards in response to changes in natural conditions, this is what is realistic, those conditions being supply and demand. Prices during the boom were based on the artificial conditions of cheap credit and a speculative bubble. The lack of credit available now is very natural consequence of a credit bubble, it is not artificial.

Its a natural consequence of an artificial credit bubble, yes, but that doesn't mean it is natural! We now are at the other extreme of the height of the bubble. We are back at 1970 levels of mortages, it isn't a normal market and all artificial means of restoring a normal market isn't working.

I think Oscar Bravo's point is we are reaching the end of the credit bubble cycle. Until the excess supply is removed and an equilibrium established we are in a distorted market.

SupaNova

K-9 wrote: »

Its a natural consequence of an artificial credit bubble, yes, but that doesn't mean it is natural!We now are at the other extreme of the height of the bubble. We are back at 1970 levels of mortages, it isn't a normal market and all artificial means of restoring a normal market isn't working.

Well we are sort of splitting hairs somewhat now. All artificial means of restoring a normal market aren't working because it is impossible, you can't artificially restore savings to debt ratios that were in place before the bubble.

I think Oscar Bravo's point is we have reached the end of the credit bubble cycle. Until the excess supply is removed and an equilibrium established we are in a distorted market.

I don't really disagree with this, the excess supply will be removed eventually through lower prices. Some argue that removing the excess supply by demolition, or just keeping them off the market, where they will end up derelict is a better option.