Wyckyd_Sceptre

Every time economists and Wall Street executives think they have acknowledged the full extent of the losses from the meltdown in real estate mortgages, more bad news turns up.





Merrill Lynch said yesterday that it would take a charge for mortgage-related securities on its books that is $3 billion more than the $5 billion it expected just two weeks ago. And a report from the National Association of Realtors showed that sales of existing homes in September fell twice as much as economists had expected, to their lowest level in nearly 10 years.
Stocks fell sharply early yesterday on the news, with the Standard & Poor’s 500-stock index falling 1.8 percent before recovering in the afternoon. Investors also bid up Treasuries as they sought the safety of government-backed debt.

At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.

That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector. The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.

That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value.

Experts caution that these estimates are preliminary and the total costs could get bigger still. They also note that the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock.

In recent years, the rise in real estate values has helped propel consumer spending, as homeowners refinanced mortgages and took out home equity loans.

“There weren’t a lot of people living off their capital gains from stocks,” said Jane Caron, chief economic strategist at Dwight Asset Management. “There were a lot people using their home as a piggy bank.”

Continued...

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michaelr

Don't expect for this to get any better!

Wyckyd_Sceptre

Eh, it will settle eventually. A lot of that appreciation was due to speculation. People lost their minds and took out risky loans that they never should have.

As far as the broader economy goes, the devaluation of the dollar should actually help exports a bit. From that perspective the Europeans must be worried a bit.

michaelr

Really, well how about the canceled loans? This is part of a bigger problem and it is not going to go away soon. Yesterday they announced that new home sales dropped eight percent, they forgot to add the words "an additional" to their story.

Wyckyd_Sceptre

I'm not saying you will see a repeat of the appreciation of the last 5 years, but at some point prices will drop to the point where people will buy. As long as the economy grows, the slack in demand will be absorbed. People will lose money, properties will be revalued, but life will go on.

As far as the defaults, I haven't seen much on TOTAL defaults. True some people are going to take a hit, some of the a significant one. But that just means working out payment plans to pay it off, they aren't getting a bye. The investor side will get hit too, but hey, what do you think happens when you have companies making no-doc loans? That's the risk you take.

People said the same thing during the tech bubble, that the world was going to end. In fact it didn't. Sure a few dot coms that weren't making money went under, but look at Google or Facebook.

When all the doom and gloom is at it's worst, that's probably the best time to buy. I just hope rates don't skyrocket though.