The Coming Collapse in Housing

[RatherInteresting]

I found a very interesting article at FXstreet.com about the Housing Bubble:

http://www.fxstreet.com/fundamental/...006-11-23.html

The author summary about why the bubble still continues is very clear:

(...) the game continues for five reasons.

Reason A, the world has been awash in liquidity, which amply feeds speculation. It comes from the leap in house values, which have been liquefied by refinancings and home equity loans.

Reason B, speculation feeds on itself, as was seen with the dot com bubble and, more recently, in gold and emerging market stocks. There's nothing like making money to insure speculators that their bets are correct and should be redoubled.

Reason C, institutional and other investors yearn for huge returns. Their clients demand them. Many pension funds still have 9% or so expected returns. And money managers that don't produce consistent high gains lose money to those who do. So there's great willingness to take sizable risks.

Reason D, a perceived risk, at least until recently, has been low. With roaring profits, junk bond default rates remain low. The low anticipated volatility in stocks and bonds has desensitized many investors to the increased risks they are taking. So, too, is the conviction that the Fed will continue to bail out speculators.

Finally is Reason E. Loose mortgage lending has been encouraged by the development of mortgage-backed securities that allow lenders to package mortgage loans and sell the securities to yield-hungry investors. So, why not make riskier loans when they can be sold easily and the risks transferred with the sale? It's like a bookmaker who expands his business without adding risk by laying off his customers' bets to others.

But what if any of these factors fails??? Unless the Fed cuts interest rates next year, the consumer may not be able to stand the mortgage pressure. Will the Fed come to save the speculators again???

Maybe it would be interesting to try interest-only loans as it is commented in this video (with Spanish subtitles):

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Regards.

[Marina]

RatherInteresting, if you are interested in the effects of housing in markets, I suggest you to take a look to one of our last published special coverages: U.S. Housing Bubble.

It's a recap of all the related information that we have published at FXstreet.com plus some new information.

Hope you like it!