I have meant to post in appreciation for your comments before this. I totally agree with your comments and wanted to let you know the distressed sales have already started from repos. Several great comments are posted in here wish I had more time. Some great 'helicopter view' analysis getting shared.
There is great opportunity and attached to this is a sadness for investors that got caught. The ones who did not recognize the trap they were in and let the situation slide to the point the bank had to move in.
Property investors mistaking this for a short term cycle are missing the point. They might have dimly heard of the mid 70's and even the credit squeeze of the late 60's but few remember or have studied the 60 - 80 year cycle bear that has started.
Asians have long used a monkey trap with a narrow neck. The monkey can just slip his hand in to grab the sweet treats however when he grabs it he is unable to remove his fist. Even as the man approaches the monkey cannot let go and will screech and tug trying to free his hand - but he just can't let go and gets caught - and eaten.
Home owners can sadly get trapped and do not have sufficient knowledge to realize what the end result is. The bank will sell the property after collecting their collateral on default - and they value it on the basis of the level of the mortgage NOT the market value. If they end up getting less they will go after the 'owner' who lost it.
Mortgage insurance will not assist in the end if this keeps going down. There are clauses in those contracts that give them an exit and that makes this a time bomb. Now for the bulls - if you have enough equity and bought long enough ago and are getting a good return even if rents actually drop; then you don't have a problem.
Even in the great depression people that had a job were fine. Some property will continue to sell at reduced prices, just a lot less as we are seeing. This is developing not a developed climax we are currently seeing IMO.
Oh and the opportunity - distressed purchases and I know this is contentious however if the banks don't get out somehow the system implodes so the savvy buyers are actually doing all of us a favor. The mess has to be cleaned up in the end so the next credit cycle can begin. If you are caught I hope you can let go in time and I genuinely feel for you.
