I drove a neighbor out to the airport yesterday, and he mentioned an episode of This American Life on NPR which was all about the state of the economy and the sub-prime lending crisis and how it’s really not just the fact that banks were lending subprime loans, but there were other factors.
It opens with the fact that in 2000 the global supply of money was $36 trillion. By 2006 the global supply of money was $70 trillion. It doubled. And all those people behind all that money wanted their money to grow.
Frankly Sharole and I are right in the middle of this. We bought when housing prices were high, artificially high for two reasons: 1) people believed that in America housing prices would continue to go up and never go down, and 2) in part because of the pressure to give mortgages to unqualified buyers which if they are unqualified, they’re unqualified no matter what the ridiculous amount. While we can afford our mortgage and continue to do so, the fact that so many have foreclosed, having been based on bad lending practices, results in a huge backlash of increased scrutiny over mortgage lending, and a market correction in prices, downwards.
At last month’s meeting of condo owners, a representative from the developer, the company that refurbished our condos and sold them, said that Realtors were telling them that $180,000 was a more reasonable price for the condos that have not yet sold.
The webpage with a summary of the episode is here. You can listen (sorry deafies) to the broadcast via free mp3 here.