The answer is FORECLOSURE. Previous housing collapse were without any exception related to employment loss resulting from weaknesses in the mainstream industries, such as end of cold war with loss of defense manufacturings, or end of technology boom with loss of profit from previous booming companies, or going back further, the collapse of oil industries devastating places like Texas. All these previous collapses were due to loss of employment forcing employees to sell their houses at below market rate, pulling down the housing market...
Today, it's very different. Today's collapse is almost completely due to housing industry woes alone, including its early financing schemes and now credit crunch. That's why Hispanics as an ethnic group is the most severely hit because most of their employment are in the housing or commercial building industries. Today's collapse is a foreclosure vicious cycle that feeds onto itself, making it spiral down without control. It loosk more like a financial system failure than a normal economic phenomenon.
With the above understanding, we are seeing that banks are massively taking over regular people as sellers. In California, foreclosure rate has reached historical high in 20 years with nearly one of every 171 households in the US are receiving a foreclosure filing. Historically, this never happened before. Today's sales market is so different from the past. Nearly 40% of total sales are foreclosure fire sales. With banks becoming sellers, prices have been crushed to the bottom of the barrel. Many hispanic concentrated locations have seen prices going back to the mid 90s level, and in some unique locations, back to 80s level. That kind of overshot would not have happened without banks acting as sellers and got the whole REO market into a fire sales bonanza. And multiple banks are competing among themselves to see who can sell their inventories faster than the other guys. This is a self fulfilling vicious down spiral that appears to be out of control.
Then came along the Housing Rescue Bill. Government and Congress are fully aware of this spiral that's out of control, potentially is going to spread and then sink most of the otherwise good school and normal neighborhoods if not contained soon. That's why they are passing this bill to stem this spiral at the expense of future tax payers and global bond holders.
The point is clear. With today's unique banks fire-sale competition, the price overshot has happened faster and earlier than all previous collapses. Without the Housing Bill, this trouble will soon spread outward to better neighborhoods, sacrifising everybody, including most of us in this board who own houses.
With the passing of the bill, the spread may be contained to Hispanic regions or other lower income regions or outer suburbs and fringe cities, putting a bottom to the downward spiral.
We are at such a unique historical juncture that nobody has ever experienced. The situation is very different today. Old strategy may not apply today.
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