Car Loans Reveal Complacent Borrowers
A reader posted this AP story that has implications for the housing bubble. It demonstrates how easily average borrowers plunge into financial situations that are not in their best interest. "A growing number of new car buyers are finding they owe more on their existing car loans than the vehicles are worth as trade-ins.The phenomenon, known as being "'upside down" on a loan, is the result of a confluence of changes."
And as the size of the problem is great, consider how much more devastating it will be when large numbers of home owners develope negative equity. "'More than a quarter of buyers are upside down when they come in, and the average is nearly $3,800,' said Bob Kurilko."
8 Comments:
I've seen this movie, it's called Mitsubishi.
What happens when companies lose money on car AND home loans?
Nothing will happen to them ! People aren't defaulting, their cars are just depreciating faster than they are paying for them. No problem, they just add that to the financing on the next car they buy and keep going.
I've been looking at the housing bubble for months now and I came to the conclusion that this is going to persist for the foreseeable future. The Fed isn't going to do any big rate hikes. It is going to start printing money like crazy. Inflation is going to flurish. The fed will hike interest rates, but real rates will always be near zero or even negative.
The fed is going to do this to get out of debt. After the dollar depreciates by 50% to 100%, our existing debts will look puny. So will our savings.
Guess what ? Those 500K houses that we are all balking at are going to cost $800K in a few years. I think we've been reading this whole situation wrong.
There is no housing bubble, not one that is going to burst anyway. Greenspan is feeding us money for a reason. Asia has no choice but to buy our bonds. No other economy that is selling debt is performing well.
Lets stop waiting for the foot to fall. It won't. Nobody is worried about a bubble bursting but a few of us bloggers. The economy is what it is. It isn't going to change anytime soon. Housing prices are going to continue to spiral upward. Soon wages will shoot out of control too as the fed injects more and more money into the economy.
There isn't going to be an clamp down on house financing. Prices are going to rise further and refinancings are going to continue and those of us sitting on cash in the bank are going to fall farther and farther behind.
I can't wait 3 years for the market to correct to buy a house. I think I'm going to spend $600K on a house and be done with it. It makes me sad. It makes me mad. I hate it. I wish it were otherwise, but that is the way it is.
(What happens when companies lose money on car AND home loans?)
Your name is GM, ta-boom! Thanks for the set-up.
(I can't wait 3 years for the market to correct to buy a house. I think I'm going to spend $600K on a house and be done with it.)
I certainly respect your opinion and I don't have a monopoly on truth. I will suggest that what you are going through, in technical market terms, would be called capitulation. A long term hold-out, throwing in the towel and joining the bull market. It is a sign of a top. Best of luck and I hope you do well! And thanks for commenting. Ben
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Cars are depreciating because so many people are buying new cars it drives the price of used cars down. you can't get a lot on trade in in an environment like that. around and around it'll go!
ben- it's also F, GE, the banks and all probably a lot of pensions or hedge funds we've never heard of that will be affected. I don't know if you read doug noland's work, but he writes all the time about the creative finance they use and how they package loans and the people that buy them probably don't know the risk involved.
I don't see it posted, but SLG just bought the Metlife building in NYC for close to a billion and they're going to make condos! ha!
http://biz.yahoo.com/ap/050330/metlife_sl_green.html?.v=6
(it's also F, GE, the banks and all probably a lot of pensions or hedge funds we've never heard of that will be affected.)
The suits think that if they spread it around the system will be safe. Those hedge funds are a disaster in waiting.
(they package loans and the people that buy them probably don't know the risk involved.)
The house of cards is so large now that I doubt any single organization knows what the risk is.
(SLG just bought the Metlife building in NYC for close to a billion and they're going to make condos!) Thank you for the link. Did you see who financed the deal? Everybody has their hands in someones pocket..Ben
oh damn, the tenant of the building financed the deal! so when SLG can't make it's mortgage payment, they'll hurt their tenant, who worst-case won't be able to pay the rent to SLG and then will have to move, in which case SLG will need to find a tenant which they won't find because the general economy will be bad and this is a run-on sentence because I can't stop thinking how stupid this is.
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