By some metrics, the U.S. housing-market boom of recent years has been more extreme than even the one that peaked in 2006.
For example, the speed with which housing prices have risen has never occurred before.
Yet, there may be trouble on the horizon (Marketwatch, Feb. 17):
‘The housing market is set for a sustained softening’: New-home construction falters, even as builders secure more permits
If the housing market winds up crashing again, many financial institutions will find themselves in a dilemma.
Here’s a quote from the March Elliott Wave Theorist:
Some states in the U.S. have made it illegal for a bank to seize the home of someone who has declared bankruptcy. In such situations, the bank and its depositors are on the hook indefinitely for borrowers’ unthrift. Other states have made it illegal for a bank attempting to recover the value of a loan to seize any of a defaulting mortgage holder’s assets other than the mortgaged property. In such situations, the bank assumes the price risk in the real estate market. These states’ banks are vulnerable to severe losses in their mortgage portfolios and are at great risk of failure. …. Although many banks today appear to be well capitalized, that condition is mostly thanks to the great asset mania, which is ending. Much of the credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, cryptocurrency investors, consumers, and so on, is not. One expert advised, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression. In my view, local, conservatively run banks — a few of which exist — will prove to be safer.