[Marxism] A second Great Depression is still possible

johnaimani johnaimani at earthlink.net
Mon Oct 12 22:08:05 MDT 2009

(JAI:  This is evidence of a forthcoming "double dip".  The first wave 
attacked lower income levels of the working class but now the loss of 
purchasing power from these 'lower' levels affects upper tiers leading to a 
cascade of forclosure.  Also, next is commercial real estate defaults due to 
the same phenomenon.)

OCTOBER 13, 2009
Foreclosures Grow in Housing Market's Top Tiers
New data suggest that foreclosures are rising in more expensive housing 

About 30% of foreclosures in June involved homes in the top third of local 
housing values, up from 16% when the foreclosure crisis began three years 
ago, according to new data from real-estate Web site Zillow.com. The bottom 
one-third of housing markets, by home value, now account for 35% of 
foreclosures, down from 55% in 2006.

The report shows that foreclosures, after declining earlier this year, began 
to accelerate in the late spring and that more expensive homes have more 
recently accounted for a growing share of all foreclosures. "The slope of 
that curve in recent months is much sharper than it was recently," said Stan 
Humphries, chief economist for Zillow. Rising foreclosures among 
more-expensive homes could create added pressure for a housing market that 
has shown signs of stabilizing in recent months as sales of lower-priced 
homes pick up.

The Zillow research compared homes against the median values for their local 
market and broke each market into three tiers by value. Zillow then looked 
at the share of monthly foreclosures in each tier over the past decade.

Foreclosures are rising in more expensive markets as home values in those 
areas fall, leaving more homeowners with mortgages that exceed the value of 
their properties. Prime loans accounted for 58% of foreclosure starts in the 
second quarter, up from 44% last year, according to the Mortgage Bankers 
Association. Subprime mortgages accounted for one-third of foreclosure 
starts, down from one-half last year.

The prime category includes so-called exotic mortgages that were 
increasingly used to buy more expensive homes, including interest-only 
mortgages that allowed borrowers to defer principal payments during an 
initial period. Borrowers often aren't able to refinance out of these 
products because the drop in home values has left them with little equity in 
their homes.

Default rates are particularly high and expected to rise on option 
adjustable-rate mortgages, which allow borrowers to make minimum payments 
that may not cover the interest due. Monthly payments can increase to 
sharply higher levels after five years or when the outstanding balance 
reaches a certain level. A study by Fitch Ratings found that 46% of option 
ARMs were 30 days past due last month, even though just 12% of such loans 
have reset to higher monthly payments.

Zillow estimated that nearly one in four homes with mortgages was worth less 
than the value of the property at the end of June. Mr. Humphries said he 
didn't expect to see foreclosure volumes level off until later in 2010.

Write to Nick Timiraos at nick.timiraos at wsj.com

Printed in The Wall Street Journal, page A19
----- Original Message ----- 
From: "Louis Proyect" <lnp3 at panix.com>
To: "Activists and scholars in Marxist tradition" 
<marxism at lists.econ.utah.edu>
Sent: Monday, October 12, 2009 6:17 AM
Subject: [Marxism] A second Great Depression is still possible

> (posted to LBO-Talk by Ira Glazer)
> http://blogs.ft.com/economistsforum/2009/10/a-second-great-depression-is-still-possible/
> Over the past year the global economy has experienced a massive 
> contraction, the deepest since the Great Depression of the 1930s. But this 
> spring, economists started talking of “green shoots” of recovery and that 
> optimistic assessment quickly spread to Wall Street. More recently, on the 
> anniversary of the Lehman Brothers crash, Ben Bernanke, Federal Reserve 
> chairman, officially blessed this consensus by declaring the recession is 
> “very likely over”.

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