But it is a cycle that repeats itself about every ten years. Real estate market picks up and starts to run, lenders offer up cheap money, lenders start to put up money at the end of the cycle for higher and higher risk loans to increase their fee income. At the end of the cycle they are making ARM 100%+ loans to people that have no business buying houses with the income they earn and the credit ratings that they have. So the house of cards collapses and the market goes flat for a few years. Then it starts all over again and repeats the same pattern.
The first cycle I went through I was an officer in a Real Estate Trust in the 1970's. We borrowed money from the banks and then loaned it out for construction projects at a higher rate. The whole game collapsed at the end of the 1970's and the bankruptcies and foreclosures were nasty. This was in Florida.
Same thing happened in the early 1990's in California. Foreclosures all over the place when interest rates went through the roof! That cycle cost me a good 100K!
If you are cash rich at the end of the cycle you can pick up some bargains and become very wealthy when you ride up the next price increase. This RE cycle usually runs at opposition to a similar cycle in the stock market. If both the RE and Stock Market cycles collapse at the same time you have a situation that can turn into a full blown depression!
Yes, I agree, very sad..... I am of the opinion that our government needs to lean on some of the financial institutions and persuade them to work with mortgage holders so they can keep their homes and still repay their mortgages. The Banks are partly responsible for all of this. They loaned people money on homes that weren't worth what they were being appraised for and at fluctuation interest rates, you know those so called subprime mortgages.
It's a bad situation, and it will only get worse unless something is done soon......
That banks don't really care because they have mortgage insurance and their insurers will make sure they come out whole. They will not work with you at all unless you can pay the interest portion of the payment each month. Of course the interest payment is 90% of the payment that you can't make because maybe you lost your job and need time to get back on track. The banks will do nothing to help you. They are heartless and mostly responsible for allowing the loans to be processed in the first place.
The government does not want to regulate banking because banking damn near controls government. A example: Look at the high rates they now charge on your credit cards, anything they want. There used to be such a thing as Usury interest rates, which placed a legal cap on the rates they could charge. It was 15& on loans in Florida in the 1970's, less than 10% in several other states. Now if you miss a payment or two in six months they will jack you up to over 30%!
The banks have managed to get most of the interest rate caps removed from credit cards and home loans. They have even gotten the bankruptcy laws changed so you can't evade loan responsibility in the event of a bankruptcy.
We could use a lot of regulatory reform in the banking industry!
What's so sad about it, people are buying things they cant afford? What's gonna be sad is if the American taxpayers have to bail out the home-lenders. When I bought my house almost 5 years ago, the mortgage company approved me for way too much loan, and if I took it that would be my fault as much as their's.