The entire U.S. economy is already in a recession, but it maybe much worse teetering on the brink of a depression driven by deteriorating real estate markets. There have been six depressions since 1837 in the U.S. There is much more damage that can result to the real estate markets and the overall American economy as a result of the credit crisis.
Foreclosures reached all-time record levels in 2007 and will surpass that in 2008, according to the Housing Predictor forecast. Fortunately or unfortunately Housing Predictors forecasts have been right on the mark. An estimated 3 million homes have been foreclosed as a result of the U.S. real estate crisis.
The crisis has spread into new exotic conventional adjustable rate mortgages at an increasingly rapid pace. More than 50% of all residential properties in default nationwide are owned by investors, the majority of whom will allow their property to be foreclosed more easily filing bankruptcies in many cases to protect their primary residence.
Financial losses and the damage to credit histories are comparatively minor consequences in this day and age. Many multi-millionaires have poor credit histories learning how to obtain financing later with little penalty. After all, banks are in the business of lending money.
The Federal Reserves emergency rate cut of the primary Fed Funds Rate by three-quarters of a point to 3.5% is an attempt to quell financial markets troubled by a deteriorating economy. However, from an historical perspective, the real estate market has always been a gauge of the greater U.S. economy from nine months to 18 months earlier than the overall economy. The national real estate recession forecast by Housing Predictor in early 2007 is worsening.
Investors on Wall Street and in other financial markets have watched their hard-earned savings go up in smoke as trillions of dollars are wiped out from the economic turmoil. Stock values around the world are falling.
The rescue plan offered by President George W. Bush announcing a $150-billion U.S. stimulus package will do little to help the ailing U.S. real estate market and millions of American home owners on the verge of foreclosure.
An old cliché in real estate is “Lenders are liars.” The loose lending guidelines, lack of government regulation, over-whelming fraud, consumer loan fraud, misrepresentations and historically low interest rates set by the Fed led to the economic crisis. Many Americans think investors should just suffer the consequences in financial losses and credit report destruction. But the credit crisis is much larger than just investors financial losses and credit being damaged.
American economist Henry George found 120 years ago that the cause of every major depression had been land speculation. However, never before in U.S. economic history has there been as much land speculation as in the past decade. Land from Florida up the eastern seaboard to New York all the way across the nation to California has been purchased by speculators at the highest rate in the nations history, much of it with little money down to protect investors interests.
The great American green back is not a political issue, and the American economy is no longer just at risk of a recession no matter what the political pundits might have you believe. It is already in a full blown recession. Government reports are always slow. Democrats, Republicans, Independents, and even highly touted special interests need to forget their differences. America is at War in Iraq and in political chaos at home.
Political differences need to be bridged to save the national economy with emergency legislation before the epidemic of foreclosures reaches 1 in 10 American home owners, which is more than probable. The subprime crisis is only a fraction of the problem. One in 28 home owners has already been affected in foreclosure in Stockton, California, one in 63 across the nation in Cleveland, Ohio and an estimated one in 24 in Detroit, Michigan. Local economies are feeling the pain in major ways.
If emergency legislation is not passed to halt the foreclosure crisis the nation is certain to see another depression not only initially caused by the subprime meltdown, and its resulting housing crisis, but by a nation that has lost confidence in itself as a powerhouse.