Catch 22

Upon collapsing the housing market was caught in a “debilitating scissor effect” (Schwartz & Seabrooke 2009) that amplified its vulnerabilities to the financial contamination emanating from the banks. The truth hurt, as banks came clean about their exposure to the property market; the real mess because to appear on the balance sheets.

As banks lost further confidence in one and other, interbank credit markets became waste lands, no one was willing to step in and lend to anyone. Borrowing became more expensive because of lack of supply, and this meant mortgages rates soared.

Homeowners found themselves in a catch 22 scenario, with a house that was rapidly losing its value, and a mortgage debt that was ever growing, they couldn't justify selling but they also couldn't afford to keep it. In effect this trapped them in a spiral of having to use more and more of their take home pay simply to meet the repayment schedule of a house that is destroying their accumulated asset wealth as its price.

Schwartz, M & Seabrooke L. (2009). Boom and Crash: The Politics of Individual Subject Creation in the Most Recent British House Price Bubble. In: Shaw, T The Politics of Housing Booms and Busts. England: Palgrave Macmillan. 52-75.

A house of cards...

The housing market was built like a house of cards, in the UK, the US and across the globe housing markets collapsed in just a blink of an eye but we know that.

It is easy to be wise after an event, but hindsight did suggest that there were indication of an accident waiting to happen. The interbank lending market had dried up due to fears of bad debt which might have been lurking on banks’ balance sheets without anyone really knowing. Over lending was considered acceptable because it enable access to a market which was ever expanding. This was the first inclination that there was a bubble. Labour encouraged home owners to see their home as a financial asset. Unfortunately, as Labours mistake, they were tied to the collapse.  This statement acted as a catalyst that portraying housing prices as assets which are susceptible to speculative and support from the market.
Schiller, 2000, states that “a bubble implies a purely speculative price phase in which the psychology of crowds allows individual investors to overvalue systematically a particular asset or group of assets.”

Schiller has a valid point in that applying his thought, there was social significance attached to living in the “right” place and being able to afford a more expensive property, thereby fixing your place in society because “mines worth more” or something along those lines at least. The integration of the housing market into the welfare model & social investment norms was the most important facet of the house price bubble according to Schwartz and Seabrooke (2009)

As the welfare model developed, family homes were considered to be a secure investment for the future, or that was one of the lessons imposed by Adult Financial Literacy Advisory Group, an agency responsible to the Department of Education and Skills, essentially it was trying to turn passive recipients of welfare rights into asset managers. Attempting to pass this responsibly onto innocent bystanders was a mistake because everyone can’t be a successful asset manager or we wouldn't need banks or financial advisors.

Schiller, R (2000). The Irrational Exuberance. 4th ed. New Jersey: Economic Affairs. 59-69.falls

Schwartz, M & Seabrooke L. (2009). Boom and Crash: The Politics of Individual Subject Creation in the Most Recent British House Price Bubble. In: Shaw, T The Politics of Housing Booms and Busts. England: Palgrave Macmillan. 52-75.