Two in One

People think about the housing market crisis all wrong. They look at subprime auto finance and talk about how it’s the same as subprime mortgage finance. But the housing market is a weird hybrid. It’s a practical market, like autos, but it’s also an investment market, like stocks. So a rise in defaults and a drop in value have a much different effect with houses than cars. It starts as a normal credit contraction, but turns into something akin to a stock market crash.

I guess the closest parallel would be some kind of alternative investment, like art. But nobody would finance a subprime consumer to buy a Picasso.

 

Last modified on Wednesday, 11 April 2018 15:12