Avoiding major crises stemming from the real estate market | Katonah NY Homes
Since 1973 a significant number of crises have occurred across the globe – many of them related to the real estate market. The primary event for the first major global crisis that began in the spring of 1973, was the crash of the housing market. This crash affected banks, as well as state economies extensively. Local economies such as the city of New York - which technically went bankrupt in 1975 – barely managed to remain “above water”. The Japanese development boom of the 1980s ended with the collapse of both the stock market and real estate market. The excesses in the real estate market in the Nordic countries, created the 1992 crisis in their banking system. The 1997-1998 collapse in eastern and southeastern Asia was triggered by excess urban development. The latest and most serious crisis began in 2008 and was due to the subprime market collapse. This crisis threatened the global financial system with chaos. Market participants who a few years earlier seemed to be swimming in surplus liquidity were suddenly found cashless, swimming in surplus homes, offices and shopping centers, redundant production capacity.
Real estate crises tend to be long in duration, compared to the short, sharp shocks that occasionally sway the financial markets and banking systems directly. Therefore if shaken, require years to recover.
Banks who traditionally provide a major chunk of the funding of the real estate market behave carelessly because historically they do not need to accept any responsibility for the negative consequences of their own risky behavior. This is because in every one of crises cited previously, the banks have predominantly been rescued by governments. Also based on the structure of real estate loans, borrower is unable to meet his loan installments, banks will require the full value of the property regardless of whether the value of the property has decreased dramatically due to economic or other conditions.
In Europe, since the beginning of the debt crisis, the value of real estate in many countries declined significantly. Many of the borrowers, who intend to pay their housing loans, have lost their jobs or suffered a significant reduction in their income. Therefore these borrowers default on payments of their loan. Other borrowers, because of falling prices choose not to repay the entire loan.
For example in the Netherlands, in many cases, parents encourage their children not to accept heritage in the event of death, because the property is worth less than the loan they have taken and they would otherwise pay a lifetime for a loan guaranteed by a home not worth the principle.
In Spain, over 400,000 orders of eviction have been issued since 2008, and 250,000 renters or owners of houses and offices have been forced to flee. Since the beginning of the year hundreds families lose their homes on a daily basis. At the same time, there are 3.4 million empty homes in the entire country-nearly 14% of homes in Spain, the majority of which belong to the banks.
http://www.fxstreet.com/analysis/active-policies-in-eurozone/2013/12/11/
Real estate crises tend to be long in duration, compared to the short, sharp shocks that occasionally sway the financial markets and banking systems directly. Therefore if shaken, require years to recover.
Banks who traditionally provide a major chunk of the funding of the real estate market behave carelessly because historically they do not need to accept any responsibility for the negative consequences of their own risky behavior. This is because in every one of crises cited previously, the banks have predominantly been rescued by governments. Also based on the structure of real estate loans, borrower is unable to meet his loan installments, banks will require the full value of the property regardless of whether the value of the property has decreased dramatically due to economic or other conditions.
In Europe, since the beginning of the debt crisis, the value of real estate in many countries declined significantly. Many of the borrowers, who intend to pay their housing loans, have lost their jobs or suffered a significant reduction in their income. Therefore these borrowers default on payments of their loan. Other borrowers, because of falling prices choose not to repay the entire loan.
For example in the Netherlands, in many cases, parents encourage their children not to accept heritage in the event of death, because the property is worth less than the loan they have taken and they would otherwise pay a lifetime for a loan guaranteed by a home not worth the principle.
In Spain, over 400,000 orders of eviction have been issued since 2008, and 250,000 renters or owners of houses and offices have been forced to flee. Since the beginning of the year hundreds families lose their homes on a daily basis. At the same time, there are 3.4 million empty homes in the entire country-nearly 14% of homes in Spain, the majority of which belong to the banks.
http://www.fxstreet.com/analysis/active-policies-in-eurozone/2013/12/11/
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