"By the time lending standards drop so that the masses have access to
credit, the boom is well underway. By the time credit is granted to anyone
that can fog a mirror, the boom is nearly over. Those buying assets late
in the game will eventually be crushed by those selling assets that got in
early." (Mike Shedlock, Daily Reckoning)
While credit is certainly more widely available, I think the lenders are capable of taking any hit even in properties dropped 30%. The 'income' leg for investors is gone for a while. Those that would be hardest hit would be late entrants. As of today we still have a shortage of properties and this wont correct for 5/7 years. Interest rates rising is the uncontrollable.
The big worry ..is when the pessimsts become optimists.
If you are borrowing over a certain % of the price of your house, doesn't the lending institution make you take out an insurance policy against the you not making the repayments. Therefore they are in a win win situation and the insurance companies are the ones who will take the hit in the event of a price crash.
If you are borrowing over a certain % of the price of your house, doesn't the lending institution make you take out an insurance policy against the you not making the repayments. Therefore they are in a win win situation and the insurance companies are the ones who will take the hit in the event of a price crash.
I presume you're referring to indemnity bonds which used to apply on owner occupier purchases over c. 80% LTV but which seem to be a thing of the past now or in the current market (I'm open to correction)? However I don't know if any similar insurance applies in the case of investment properties or whether the lenders assess the overall risk based on other criteria and either lend or not but don't generally require additional insurance if they do lend...
Jeez guys, you're missing the point! It ain't about the insurance companies. But now that you've drawn me in, surely the equity you piss away in the event of a foreclosure is a loss to you?
If you are borrowing over a certain % of the price of your house, doesn't the lending institution make you take out an insurance policy against the you not making the repayments. Therefore they are in a win win situation and the insurance companies are the ones who will take the hit in the event of a price crash.
No, I have no idea if this was the case in the past, but it is not the case nowadays, and has not been for at least 5 years. The banks and the borrowers may both suffer the loss in the event of a property crash, how much would depend on the circumstances behind the crash.
WizardDr why do you feel that the banks could ride out a 30% drop in house prices? Additionally, where did you get the information that we are still understocked as regards our housing requirements?