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Today: 20.01.2018 - 15:12:15
   Canada Mortgage Hub Discussion Board -> Mortgage Rates Canada -> What has created real estate crash in the USA? Why are people abandoning their homes?
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nooky9643

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What has created real estate crash in the USA? Why are people abandoning their homes?
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ou6

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Bluntly, stupidity and greed. People borrowed the maximum amount of money on terms they didn't understand from lenders out to make a quick buck. Now the rates are adjusting, the "bubble" burst and the houses that were overvalued a few years ago are not valued as highly now, so the new payments are too high and the borrowers owe more than they can get for the house at sale. It's very glib to vilify the lenders as greedy moneychangers, and there were certainly unscrupulous lenders who tricked and cheated people. But the borrowers didn't understand the terms of their loans, and just saw dollar signs. There's plenty of blame to go around.There are also people who paid attention to what their were getting into, and lenders who didn't loan people more money than they could afford. The bank I used to work for and the bank I work for now both stayed out of the subprime and Alt A markets, and are just fine now.
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pwinwa

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Because a lot of people were put into adjustable rate mortgages that they can no longer afford. Once interest rates went up, people saw their mortgage shoot up $100s to $1000s over night. The banks are equally to blame for lending the money in the first place. Citibank in NY just wrote off over a $1B in bad mortgages. Countrywide almost went under before Bank of America bought them out.
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nmarinko

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This is not an easy answer, but to put it simple:Housing bubble lead to many bad loans to people who couldn't afford them, called subprimes. After a while ARM mortgages started to adjust and people couldn't afford them. Let to literally millions of sub-prime borrowers who couldn't afford their payments anymore.Thus mortgage meltdown and credit crunch.
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p6d5

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your government is robbing you blind.***down here, the guideline for a traditional mortgage loan is that the payment should not exceed 28% [stretched to 32% if no other loans owed] of one's pre-tax income. Because we may get a deduction for interest paid on a mortgage, this ration works out fairly well for all income levels, despite our progressive income taxes.{as you know, our combined income and social insurance taxes are lower than yours, so our take home pay tends to be a higher percentage of gross pay.}in the last expansion [2002-2006 or so], a fairly large number of houses were sold to people who didn't meet the traditional 28% of income test, in part because "everyone" believed the price of housing was going up and so the bank could simply foreclose to recover their money if the buyers couldn't pay.like all popular but silly ideas, this one went to extremes. The prices of housing went too high in the fastest growing cities, in major part because there were so many buyers with poor credit [don't meet the 28% criteria] chasing relatively few homes.perhaps worse, many of these buyers did not understand that the payments on a mortgage can and do change over time [with interest rates], or that they signed for a "teaser" introductory rate [low starter rate but higher later rate], or simply didn't care as they intended to sell the house anyway to someone else for more money -- so they paid too much and agreed to pay too much [more than they could afford] in payments.the chickens are coming home to roost now. buyers are failing to make the payments that they never could make in the first place. so they get foreclosed. the banks have gotten burned [by their own foolishness] and now refuse to lend to anyone without the traditional 28% of income criteria. because of this, demand for houses has fallen heavily and thus prices are going down.of course, foreclosed houses are being resold by the banks for whatever they can get -- which puts more downward pressure on home prices.***there are only a few places in America where houses cost as large a proportion of one's income as they do in Vancouver. In all of those places [NYC, SFO, and Honolulu come to mind], the reason for the high prices is that the government does not permit very many new houses to be built. This keeps the number of available homes smaller than the number of people who want one and thus prices are bid up.I suspect the same is happening in Vancouver. And the cause is government -- not the luckless building industry that the politicians probably blame.
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