Are we on the Verge of A Great Depression?

Some are saying the recent mortgage security crisis and resulting bank failures may be ushering in a new Great Depression for the 21st century.

How did we get here?
This is what happened: Banks would grant home loans, then turn around and sell those loans to aggregation companies (like Fannie Mae and Freddie Mac) in order to realize an immediate profit. Those companies would then package the loans as "mortgage-backed securities" and sell them to investment corporations, again passing the risk along to those corporations' investors. This created a huge house of cards; the stability of which relied on the real estate market and on loans made by lenders who, as it turned out, had been less than prudent in their assessment of risk. Many of these were "subprime" mortgages, so called because the borrowers were at high risk of not paying the money back. When their greed and lack of due diligence caught up with those lenders, the house of cards started to collapse, and we saw examples of this with the crashes of investment companies like Bear Stearns. This has been followed more recently by the collapse of mega-banks like Washington Mutual and Lehman Brothers. Many of those wishing to sell property in this market are at their wits' end, some even resorting to raffling off houses or abandoning them if they can't find buyers. In America it is difficult to even sell and rent back your homes, which would ultimately provide you with a certain degree of stability (in the form of a roof over your head).

The real estate bubble has popped and everyone is feeling it. On the other hand, if you're looking to buy a home and you have the money, you may be able to take advantage of low prices in the market and snap up a house for considerably less than you would have paid just a few years ago. But what's certain is that the U.S. mortgage and housing market is not going to recover from this any time soon. According to a national survey by law firm DLA Piper, "62 percent of [real estate executives] don’t expect the real estate markets to stabilize until 2010."

About the Author

With more and more American people facing property repossession and more and more properties becoming vacant, now may be the perfect time to invest in real estate. As people struggle with mortgage repayments you will find an increasing number of tenants seeking a quick property sale which will ultimately push down their asking prices

Author Profile: Stebee

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