Sunday, April 1, 2007

Spring may turn into season of reckoning for U.S. housing industry

You don’t need to be a physicist to work out the economic gravity of the current U.S. housing situation. It went up, and now it is coming down. April it seems is bringing some unpleasant surprises, reality being one of them.

No Spring Break “Springtime usually means good times in the U.S. housing industry, but this year it’s threatening to become a grim season of reckoning. ‘Things seem to be snowballing very quickly,’ said economist Steven Cochrane. ‘It’s going to be a weak spring.’”

"The sombre outlook marks a dramatic shift from the euphoria that prevailed in 2005. Years of steadily rising home prices had spawned a giddy, greed-driven atmosphere that seemed to make people forget about a basic law of economic gravity: what goes up eventually comes down.

As housing prices soared, lenders entrusted more money to borrowers who probably would have been turned away under more normal market conditions.

The risky behaviour propelled the rapid growth of subprime mortgages - home loans designed for borrowers with blemished credit histories. By some estimates, about $1.3 trillion has been lent to subprime borrowers across the country. That's nearly as large as California's economy."


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