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Sunday, July 10, 2011

Why Housing Is Going To Zero: You Can't Get A Mortgage

This Wall Street Journal article reports that the unavailability of mortgages for all but the very best credit risks threatens the housing recovery.

As I have written before, a myriad of factors are combining to threaten any housing recovery, and in fact are more likely to cause a renewed, sustained and sharp decline in housing prices.

The banks are hoarding cash.  This manifests in a reluctance to extend loans, either for mortgages or for small businesses.  The fear of not being repaid on loans strongly indicates that banks will fight tooth and nail not to grant mortgage principal reductions in any but the rare case.  (Although banks have granted more principal reductions than is commonly supposed; this is a bad policy and threatens to encourage a wave of strategic defaults from the homeowners who are most able to pay their mortgages.) 

Read previous Eric Dixon commentary on the housing crisis:

June 2011:  Economists notice that bank tightness prevents prices from stabilizing.

February 2010:  Eric Dixon is among the very first to call Obama's proposed ban on foreclosures a bad policy move that would prevent the housing market from finding a natural bottom. 


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