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Home prices would drop to 75% overnight in the U.S. if mortgages weren’t available, since the majority of Americans live paycheck to paycheck and have $0 Net Worth. Cash-rich investors would buy everything up and rent to the cash-poor masses.
However, this actually wouldn't happen, because if there were no mortgages, there wouldn't be many cash rich investors. It requires somebody to be in debt on the other side of the bank's balance sheet in order for somebody else to have a cash balance at the bank.
Mark_LA
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2010 Nov 5, 7:07am
Home prices would drop to 75% overnight in the U.S. if mortgages weren’t available, since the majority of Americans live paycheck to paycheck and have $0 Net Worth. Cash-rich investors would buy everything up and rent to the cash-poor masses.
However, this actually wouldn’t happen, because if there were no mortgages, there wouldn’t be many cash rich investors. It requires somebody to be in debt on the other side of the bank’s balance sheet in order for somebody else to have a cash balance at the bank.
I agree with you, but only by modifying your statement to read "there wouldn’t be many NEW cash rich investors."
There's millions of "millionaires next door" with $1 million+ net worth in the U.S. These cash rich investors would buy homes for $100k cash that rent out for $2,000 per month. In less than 5 years, they would get their initial investment back, then in the next 5 years earn another $100k from the renters. They would then use that $100k to buy another property.
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Property prices wouldn't increase much, since all the financed buyers would be marginalized, preventing them from bidding up home prices. The opposite of what happened in from 2002-2006, when anyone with a pulse qualified for a loan and were able to bid-up home prices to bubbly levels.
The renters would face a big hurdle in becoming future home owners: how can they save $100k when they're giving $2k/month in rent to the landlord & there are no 30-year mortgages available?
There you have the explanation for the huge income disparities in third world countries like India and Mexico. The richest man in the world lives in Mexico, while it takes the common man there 3 years to save up to build 4 walls for a room.
There you have the explanation for the huge income disparities in third world countries like India and Mexico. The richest man in the world lives in Mexico, while it takes the common man there 3 years to save up to build 4 walls for a room.
I agree. The lack of a working credit system is a huge part of what distinguishes rich countries from poor countries.
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With the recent announcement by the FED to print $600 billion dollars and release them into the system it seems that the FED is determined on destroying the dollar in an attempt to stimulate inflation and get the economy moving again. I heard an interesting projection made today from a guy by the name of Steve Peasley on KDOW predicting that housing prices will inflate as the dollar gets crushed eventually causing housing, stocks and commodities to increase significantly in the next few years. I would like to hear the boards comments as to what effect you think QE2 will have on housing prices in the next 2 to 5 years.
#housing