7/31/2012 8:03 PM ET|
US housing mess: It's not the worst
Spain has had one of the highest rates of homeownership in the world. By 2002, 84% of Spaniards owned homes, assisted by steady employment, improved wages and government efforts including a mortgage-interest tax deduction and elimination of rent controls.
Spain and Ireland joined the European Community, the forerunner of the European Union, in 1986, leading to the removal of regulatory and trade barriers and, later, the adoption of a common currency. "Because of the integration, credit was available at a much lower rate," Hoek-Smit says. "Everyone had the same currency, there were no more boundaries financially, no more foreign-currency risk."
But there was a penalty: After Spain and Ireland relinquished control of their monetary policies, they lost the ability to control growth by raising interest rates.
In Spain, legions of sun-seeking Northern Europeans scooped up second homes and retirement retreats. Home prices shot up by 10% to 15% each year for seven or eight years.
Between 2000 and 2006, the average home price grew to 13 times the average worker's salary, according to Spanish real-estate writer Borja Mateo. Imagine a worker earning $60,000 buying a $780,000 home.
Most Spanish mortgages are cheap, adjustable-rate products, says Lea, of San Diego State University. Banks refrained from peddling the risky subprime loans that many American lenders sold. But when Spain's bubble burst, that didn't matter: Nearly a quarter of Spaniards -- and about half of young people -- are jobless now, sending formerly solid borrowers into default.
Spanish real estate, hugely overbuilt, has lost 27% of its value, similar to the average drop in the U.S. nationwide. Experts predict that, unlike U.S. prices, prices in Spain have much further to fall. Spanish banks are getting a 100 billion euro ($121.6 billion) bailout from the European Union. Lea predicts the tumble in Spanish real-estate prices eventually will resemble the some of the biggest plunges in parts of the U.S. -- in Florida (43%), California (44%), Arizona (46%) and Nevada (58%).
Trouble in Ireland
Ireland's bubble, too, was fed by cheap credit, easy lending and overbuilding.
A key difference was scale. The country is small, with just 4.7 million people, yet its banks took on more debt, proportionately, than anywhere else, except maybe Spain. "It was mostly on the construction side . . . enormously irresponsible loans to developers who got stuck with developments they could not sell," says Hoek-Smit.
Home prices grew unaffordable, even with low interest rates and wages rising so high that Irish industry became uncompetitive. "That bubble had to burst, and when it did, it took down the banking system," Lea says.
The government's bank rescue added greatly to the problem, he adds. Ireland guaranteed all bank liabilities, nationalizing two of its three largest banks. Ireland's 64 billion euro ($77.8 billion) bailout was "perhaps a number they could not afford in any stretch of the imagination," says Lea. "Because Ireland was so overbuilt, it'll be many years before you see the property sector contributing to the economy again."
The U.S. bailed out its banks, too, but unlike in Ireland, the American bailout had limits. And U.S. megabanks, at least, have repaid most of the $245 billion they got from the federal government.
The global situation
The fragility created by these bubbles continues to haunt economies around the world. Each country is trying, at its own pace, to contain and absorb losses. But "we are still in the middle of it," Hoek-Smit says. "There are incremental improvements, but it is still dangerous."
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Its sad how both partisan Democrats and partisan Republicans fail to acknowledge their own party's failures. To vote Democrat or Republican is to be a willing participant in the destruction of this country. Those two traitorous parties (and the elite businessmen who support them, whether Cons like Koch and Adelson or Libs like Immelt and Soros) are every bit domestic enemies of the American people as al Qaida terrorists are foreign enemies.
The only hope for this country is to vote BOTH parties out of office in favor of independents and 3rd parties, impose tarrifs on foreign goods (until foreign workers have higher wages), and get money out of politics by only allowing public financing of campaigns.
I close with a quote from Cicero:
“A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear. The traitor is the plague.”
"People already are doing research on it. We'll be arguing about it for the next 10 years," ......Who cares. I lost my dream home in 2010. I've never sat and argued about it. I moved on and i'm rebuilding my financial life again, even in my mid 50's. I don't care how it compares to the rest of the world.
It's like arguing over the price of Gas. Nothing ever changes. Who cares. Pay for it and move on already.
Marilyn, you’re a risk. You are saying that house prices follow area wages and not the number of bedrooms. You are actually calling it a bubble and not expecting to recover. Next you are going to be saying that houses do not appreciate but follow inflation and wages. And in reality, they depreciate. I have been saying this for a good number of years since the peak and have been called sacrilegious. But house prices at 3 - 4½ should be called extreme. I will never be a real estate agent.
WE, IN GENERAL ARE RIGHT WHERE THEY WANTED US TO BE. WORKING MIDDLE CLASS WITH MEDIOCRE CREDIT RATINGS . WITH BANK OF AMERICA HOLDING BACK AID THEY ARE LEGALLY BONDED TO DISTRIBUTE FOR LOAN FRAUD AND OTHER SUCH SECURITIES VIOLATIONS,FORECLOSING ON HIGH DOLLAR HIGH APPEAL PROPERTIES AT WILL AND DRAGGING HOME OWNERS THROUGH MONTHS OR IN MY CASE YEARS OF MYSTERIOUSLY MYSTIFIYING PAPERWORK THAT I HAVE TO RESUBMITT EVERY 10 TO 20 DAYS ....YEAH THEN TACK ON THE NEW STUDENT LOAN SYSTEM,THE IRS AND NOW THE STATES TAXS MUST GO UP...YEAH I THINK THEY ARE RIGHT SHOULD BE A GREAT MARKET FOR FORECLOSURES ...
UNEMPLOYEMENT , SUICIDE....FINANCIALLY OF COURSE.
William Hinkley, Please back up your preposterous statement by showing us the part of the law that required this. Not just the CRA. Show us the actual language in the legislation you are referring to. BTW, the Community Reinvestment Act (CRA) concerned red-lining and involved a few of the largest banks. It never applied to any mortgage lending company.
luna1027 where were you when in 2008 when the lies were being reported. I was in Iraq. This administration has contained the country for the last three and half years from dropping so far off the map and becoming a third world country. The last adminstration in their last year, robbed American for every penny they could get their hands. So be careful what you asked for. Remember, if someone robs you for 8 years, it wil take more than 4 years to get back on track. How soon we forget!
I have too much gray hair. I heard that 2-2.5 times your income (excluding your wife) with 20% down was the standard. I was always told to look at taxes, utilities and maintenance for this reasoning. Remember you will fill extra rooms. And include the possibility for job volatility. 3-4.5?
Lesser house - the more you can enjoy – Greater house – the more your ego can enjoy. This is true even if inflation hits hard and eliminates your mortgage.
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You can give your car the care it needs without draining your bank account if you follow this advice.