What does the current meltdown in the subprime mortgage market mean in the grand scheme of things?
Currently Eastern Wayne County (Detroit-Livonia-Dearborn) is among the worst markets in the nation when it comes to foreclosures. Meanwhile to the south Ohio is the state in the nation with the most foreclosures and five of its six biggest cities (Columbus, Cleveland, Akron, Dayton, and Toledo) are in the top 20 cities for foreclosures and the sixth, Cincinnati, was still at number 34. But it’s a problem not only in the Midwest but in places like Las Vegas and California showing that this is nothing like a localized problem. It’s a nationwide real estate crisis. Inventories of unsold homes continue to increase and though many sellers stubbornly refuse to lower prices they are going down anyways.
We saw last week that its not only a national issue but a global issue when something of a collapse was triggered in France affecting Europe as a whole which had been buying up securities that consisted of risky US mortgages whose borrowers are now defaulting.
There was not as much effect in Asia where investors had plenty of opportunities to invest locally in rapidly growing sectors and so we now see the Japanese yen increasing against the dollar. Meanwhile the global crisis reflected back to North America where the Canadian dollar and the Mexican peso both dropped in value as a result of last week.
Now that we know that these subprime mortgage backed securities were riskier than they were rated we should expect new loans to slow to a trickle. If that doesn’t do enough to further slow the American real estate market than any legislation that restricts the conditions in which subprime borrowers can borrow ought to.
