Looking Back On The London Crash
This NZCity link explores the experience of homeowners in London after the last boom. "Homeowners were walking into banks and tossing the keys to the home on the bank manager's desk, saying: 'It's all yours now.' And then they learned one of the brutal facts about home ownership; you cannot hand your house back to the bank and walk away from your mortgage."
"The banks took the keys, sold the house and then sued the owners for the difference between the selling price and the mortgage debt."
In telling the tale, it seems like the writer works for the LA Times. "Income growth was strong. Borrowers were able to obtain higher loans relative to housing values. Demographic trends were favourable with stronger population growth in the key house buying age group. The supply of houses grew more slowly. Interest rates fell. The very experience of housing appreciation reinforced expectations of further gains and the market had become a classic speculative bubble. The house price to income ratio, which stood at the second highest peak in the post-war period."
Then it all unwound. "The bust was the result of the reversal of most of these factors. Interest rates rose. Income growth and growth expectations weakened. Demographic trends reversed. Mortgage lenders tightened up their lending criteria. Not even the major falls in nominal interest rates were sufficient to revive UK house prices. UK housing remained very bad for very long. When property crashes, it is far more painful than a share market crash."