Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
European Tribune - Meanwhile, the credit crisis slowly worsens
As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.
I can't see how falling house prices and tighter lending standards can make people fall behind on their payments, unless "tighten lending standards" means "raise interest rates" on existing variable-rate obligations, which is not exactly the same thing.

Lending standards are about new lending, not existing lending.

We have met the enemy, and he is us — Pogo

by Carrie (migeru at eurotrib dot com) on Tue Feb 12th, 2008 at 06:58:57 PM EST
... cars, white goods, business investment in productive assets ... which means a lower equilibrium national income, which means less income with which to meet ongoing obligations.

The old ...

Y_0=EXP=C+I+G+NX
C=f(Y_0,i,Exp(Y_j)...)
I=f(i,Exp(Y_j),...)

... loop


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Feb 13th, 2008 at 02:32:05 AM EST
[ Parent ]
on Helocs (home equity line of credit) to fund your living standards, and suddenly that source dries up (and requires to be paid back), then consumption will take a dive.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Feb 13th, 2008 at 03:42:05 AM EST
[ Parent ]
Yes, but that doesn't mean you have to miss mortgage payments. You just have to cut back on discretionary spending.

Or are we saying that "prime borrowers" are maxed out and already had no discretionary spending, even using home equity withdrawals for essentials?

We have met the enemy, and he is us — Pogo

by Carrie (migeru at eurotrib dot com) on Wed Feb 13th, 2008 at 04:22:45 AM EST
[ Parent ]

Or are we saying that "prime borrowers" are maxed out and already had no discretionary spending, even using home equity withdrawals for essentials?

Yep.

Go look at this blog, it's enlightening
http://www.irvinehousingblog.com/

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Feb 13th, 2008 at 05:03:25 AM EST
[ Parent ]
There's another explanation which also feeds this.

Many borrowers with good credit are nonetheless finding it impossible to refinance (when you are underwater loan to val, no matter your credit rating, you're not going to be able to refi). And they are stuck in their house for the very same reason loan to val is > 100%, ie you can't sell it for what you owe (ah, debtors prison, American-style. A gilded cage, perhapsm but a cage nonetheless...)

At the same time, rental rates haven't gone up anywhere near like real estate has, and that reasonably good credit will get them into quality rental housing. And, I think we can agree that when loan to val is greater than 100%, you don't own your increasingly less valuable house, the bank does and you are simply renting from them, at a rate both higher than you can afford and higher than the market rate for a similar property if you were to go out on the rental market.

It's simply a good business decision to walk away from the house, move everything and go find a good deal on the rental market.

In fact, this is the dynamic which scares the markets far more than the so-called "subprime" mess. It's not a subprime mess, it's an attitude shift towards default on the part of the vast middle class with an average FICO of "very good". An attitude shift which is really hard to model but nonetheless is very real. Thin layers of false consciousness stripped away, gradually.

It was never primarily a subprime issue. No one cares about the poor people and their crapppy credit, they never did and now's not the time to start. Small part of the market. Rule number two in the game of US politics: when someone is talking about an issue concerning the poor, there's something more to it, look between the lines and behind the rhetoric. It's not about the poor. It's either about the middle class, or about the inability of the wealthy to soak the poor. It's never about the poor.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Feb 13th, 2008 at 10:50:54 AM EST
[ Parent ]
Great comment.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Feb 13th, 2008 at 12:58:40 PM EST
[ Parent ]
Thanks.

Coming back to Minneapolis/St Paul anytime soon? I have a nice house in a good, centrally located urban neighborhood for sale!!!

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Feb 13th, 2008 at 01:25:13 PM EST
[ Parent ]
I won't be moving back anytime soon, no. What neighborhood is it in though? I wanted to buy a condo in uptown in 2000 when I got out of school, and in retrospect it was possible, but even then I wasn't too keen on how rapidly prices had risen.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Feb 13th, 2008 at 02:31:16 PM EST
[ Parent ]
It's in Mac/Groveland about midway between St Thomas and St Catherine's Universities, a couple of blocks off the river road.

We bought here before the big neighborhood turnaround, had been renters before right across the street. I bought from a friend who had to move for his job, it was really a handshake deal.

For some reason, the neighborhood just took off, a lot of older neighbors who've been here forever are struggling with how much their property tax bill has gone up in the past five years and are selling. My own county appraisal is now for almost three times what I paid for the thing. Not sure what that's worth, guess I'll have to wait to find out, but even if it's only in the ballpark, I think I'm going to buy some goat farm in the west var and lay low for a while....

Ironically, given neither my wife nor I are religious by any stretch of the imagination, it's in a Catholic parish (a very conservative one) which guarantees admission to a Catholic K-8 school, which itself guarantees admission to Cretin/Derham Hall in Saint Paul which somehow has become quite exclusive. So Catholics moving into the Twin Cities have been pushing up prices. I chalk this up to upper-middle class nostalgia, and hope it lasts a little more. Obviously I have no use for these catholic schools, but all the neighbor kids now go there.

Moral of the story, if you're Catholic and moving to the Twin Cities, I'm probably where you want to live.

OTOH, Uptown is nice, but then, you have to live in Minneapolis to be there. And for me, that's too much to ask.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Feb 13th, 2008 at 02:52:16 PM EST
[ Parent ]
Having grown up in the area, and noticing the differences between minny and st. paul, I never though they were particularly significant beyond a few pet peeves (plowing policy for example) that would never swing my decision on where to live.

That's a great neighborhood. My friends and I almost rented a house in that area for our last year of college. We ended up with a (cheaper) townhouse a few blocks from the cathedral down Selby Ave.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Feb 13th, 2008 at 07:21:46 PM EST
[ Parent ]

Display:

Occasional Series