SocraticGadfly: Will the subprime collapse depress housing prices, especially in subprime-glutted suburbs?

March 23, 2007

Will the subprime collapse depress housing prices, especially in subprime-glutted suburbs?

It certainly could.
Until early 2006, the overheated lending market was pumping out money. Brokers competed to sell mortgages, and, in many cities, incentives to sell stoked home prices into double-digit yearly appreciation. Loans covering 100 percent of a home’s purchase price were not uncommon, with no down payment required. Borrowers, even with badly damaged credit, were breezing into lenders’ offices and emerging with loans that sometimes even locked them into paying more than they earned.

Now, “it’s back to the old-fashioned rules,” (Christopher) Cagan says. With less money available, and with fewer buyers and a glut of houses for sale, lenders are requiring detailed application forms and documents detailing finances and income.

Note a few words and phrases: “Overheated lending market” (that obviously needs to cool down); “double-digit yearly appreciation” (that isn’t sustainable now that the rug’s been pulled out); “glut of homes for sale” (which will remain unsold as part of a glut until prices are cut).

Boy, if I were a city manager (Ricky Childers in Lancaster), I wouldn’t be making noise about cutting people’s property taxes right now. The fact that you are reinforces the idea that the Lancaster City Council made a bad choice in naming you the new city manager.

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