Wednesday, October 15, 2008

Topics For Discussion III

On a strictly dollars and cents basis (ignoring transaction costs, credit rating impairment and social mores), the ENTIRE home owning public has the economic incentive to default on their mortgage loans. How important has the growth in mortgage debt been to the economic expansion and the growth in disposable income? Judging from the above graph, our economy has become dangerously dependent on the home equity “ATM”. As home prices decrease, homeowners are unable to sell their homes at a profit if loan payments become too cumbersome. This is the main reason for the high default rates real estate markets are experiencing.

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