IN Golden State, about half of all lends are care only. IN the bay area, make that two thirds. THanks to easy terms, the payments on the new place are lower than on the buyer’s before home. FOr the time being. LOts of buyers are leaping periodic monthly payment and adding the difference to their debt. MOre than 1/3 of all home sales involve second homes, usually speculations. FLorida is packed with condos that no one lives in up to 40% of “home” sales in some markets!WHat’s happening is that home buyers and sellers are trading pieces of paper that say some house is worth, let’s say, $450,000. BUt nobody’s bank account or paycheck is taking a hit to pay those prices. NO one is working longer hours to repay the vast new debts. IT’s a fool’s heaven until care rates go up, superintendent expenses come due, and prices start to tum ble. WE’re talking about borrowers who spend every dime and live from paycheck to paycheck. THey never save a penny. IN 2005 americans’ personal savings rate dipped into contrary section, minus 0. 5 percent, aught that has not transpired since the great melancholy. THis means that americans not only spent all of their after tax income last year but had to augmentation lending unless they had savings to wipe out. THe savings rate has been opposed for an entire year only twice before, in 1932 and 1933, two years when the country was struggling to cope with the great dejection, a time of massive business flops and job layoffs. WOrse yet, they’ve loaded up on credit card debt as well as credit debt. THeir adaptative house payment will go up like crazy at the very same time their house loses value. DO you think they’re going to tough it out and persist to make those disbursements?DOn’t count on it. MOst of them couldn’t do it if they tried. IN fact, millions will lose their jobs as the economy turns down. 40 percent of the new jobs in this country in the last few years have been housing related. THose jobs will disappear. LOok for a huge, huge wave of defaults. DEsperate homeowners will load up the apparatus, hand the keys to the lender and drive away. WHat’s more, they’ll do it by the millions, fetch down the world’s biggest fiscal foundations and crashing the stock exchange while they’re at it. THe wall street journal says, “in recent years, the housing business has bent over caught to allow people. TO buy houses they couldn’t earlier afford. NOw the bill is coming due. ” money magazine reports that home prices are going up five times as fast as personal income. “In fact, the market could not have run this far if not for the proliferation of interest only credits, which make it probable for people to purchase more home than they could differently afford.
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