‘Debt’ is a mode of using future purchasing power before making payment in the present. Debt is generally granted with expected repayment, mostly adding a certain amount of interest. But how come this practice ended up being one of the most talked about’s part of our lives in all these years. Starting from one’s flashy mobile phone, car, to education, to house and in certain cases home Decors too, all comes through various models of loaning facilities.
Initially low interest rates and intense competition among lenders drew millions like us into borrowing to buy our first homes, the dream car, the first wedding gift, a world tour, daughter’s education abroad etc. People not only exchanged rental apartments for partake of that dream but also went beyond there risk taking capacity to make the gains.
Millions borrowed for costly home expansions and renovations. The resulting boom in residential construction and its dependent industries partly created a question in itself. How soon will we get tamed to this new master called DEBT. As housing prices went up, homeowners' "equity" in houses rose, and that allowed them to borrow still more with their higher "home equity" as collateral. If and when either the borrowing or the lending slows, the housing bubble will likely burst. As home buying slows, housing prices will stop rising. Inventories of new homes will become difficult to sell, resulting in lower home prices. Housing construction will stop, raising unemployment in that industry and all others dependent on it. Rising unemployment will likely further depress home prices since the unemployed cannot maintain mortgage payments, lack of collaterals and so on.
Some figures from the AMERICANA….Everybody’s dream country .In 1974, Federal Reserve data show that US mortgage plus other consumer debt totaled $627 billion. By 1994, the total debt had risen to $4,206 billion, and by 2004, it reached $9,709 billion. For the second quarter of 2005, the Fed announced that the nation's debt service ratio (debt payments as a percentage of after-tax income) was 13.6%, the highest since the Fed began recording this statistic in 1980. This showed that how the Growing America fed the reptile (Debt) in the growing days.
As a stock bubble, will there be a housing bubble too?
What would happen to those who are dreaming to make their dreams come true by taking credits on collaterals or otherwise if this industry crashes? It’s like a House of Cards. One card down and millions of Heart Broken…… Think Again….
Initially low interest rates and intense competition among lenders drew millions like us into borrowing to buy our first homes, the dream car, the first wedding gift, a world tour, daughter’s education abroad etc. People not only exchanged rental apartments for partake of that dream but also went beyond there risk taking capacity to make the gains.
Millions borrowed for costly home expansions and renovations. The resulting boom in residential construction and its dependent industries partly created a question in itself. How soon will we get tamed to this new master called DEBT. As housing prices went up, homeowners' "equity" in houses rose, and that allowed them to borrow still more with their higher "home equity" as collateral. If and when either the borrowing or the lending slows, the housing bubble will likely burst. As home buying slows, housing prices will stop rising. Inventories of new homes will become difficult to sell, resulting in lower home prices. Housing construction will stop, raising unemployment in that industry and all others dependent on it. Rising unemployment will likely further depress home prices since the unemployed cannot maintain mortgage payments, lack of collaterals and so on.
Some figures from the AMERICANA….Everybody’s dream country .In 1974, Federal Reserve data show that US mortgage plus other consumer debt totaled $627 billion. By 1994, the total debt had risen to $4,206 billion, and by 2004, it reached $9,709 billion. For the second quarter of 2005, the Fed announced that the nation's debt service ratio (debt payments as a percentage of after-tax income) was 13.6%, the highest since the Fed began recording this statistic in 1980. This showed that how the Growing America fed the reptile (Debt) in the growing days.
As a stock bubble, will there be a housing bubble too?
What would happen to those who are dreaming to make their dreams come true by taking credits on collaterals or otherwise if this industry crashes? It’s like a House of Cards. One card down and millions of Heart Broken…… Think Again….
2 comments:
Hi! Deepika,
Nice written.
Regarding your question, that will this industry also burst like a bubble? I think no! As credit is a need which every one has, and there is no end to this need. yeah but people while going into debt should properly analyze: are their debts good or bad? and should abstain from going for bad debt...
Hi! Deepika,
Nice written.
Regarding your question, that will this industry also burst like a bubble? I think no! As credit is a need which every one has, and there is no end to this need. yeah but people while going into debt should properly analyze: are their debts good or bad? and should abstain from going for bad debt...
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