Home > Main > Banks will be even more insolvent as housing prices drop another 20%

Banks will be even more insolvent as housing prices drop another 20%

March 22, 2011

Some of the first posts I had on Traders Crucible were about housing prices.  I think housing prices are going to drop at least another 20% as I outline in my Strategic Ideas page.  The supply of homes underwater right now, the foreclosures that are being postponed by the banks, and the level of wages to prices are all huge factors in this prediction.

It turns out that Gary Schilling also thinks housing prices are going to go down by another 20%.  Glad to see even more reasons why housing is likely to go down more.

The impact on the banks will be tremendous.  Even at current housing prices, they are zombies – what will happen when the incentive to walk away gets both wider- as in impacting more people –  and deeper – meaning that specific individuals are more underwater on their mortgages?

Then, as the method for walking away becomes widespread knowledge, what will happen then?  This banking crisis is nowhere near over…

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  1. Kris Smith
    March 22, 2011 at 10:48 pm

    There are serious demographic problems for housing going forward as well. With boomers reaching retirement age they won’t be purchasing homes like they have in the past and scaling down instead of up.

    The demographic issues for the U.S. are talked about a lot in terms of Medicare and Social Security, but the effects on future investment returns and productivity haven’t been talked about as much. The ratio of workers to retirees in japan began to turn in the early 90’s ahead of 20 years of stagnation.

    Regarding banks, what concerns me most is that they still have big chunks of junk on their books which many of them marked up at the beginning of 2009 when fasb relaxed the mark to market accounting rules. This will be a drag for years to come.

    • TC
      March 23, 2011 at 7:46 am

      Hey – Demographics are another headwind for housing that I had forgotten. I don’t know how much it plays into the first round crash, but this second leg down it must be a contributing factor. And it will be a large factor in any possible rebound.

      I know – those banks have so many things wrong with them now that there is no fix that avoids nationalization.

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