Financial Damage to Top S&L Crisis in U.S.

credit crunchFinancial losses from the credit crunch will top the 1.4-trillion dollars lost in the U.S. Savings and Loan Fraud scandal, according to a comprehensive analysis conducted by Housing Predictor.

The dollar damage to the U.S. economy will exceed S&L losses due to widespread growing losses in financial markets by banks, private investors, and millions of individual home owners losing their homes to foreclosure. The losses, however, do not include that of home equity now estimated to be at least 50% of all U.S. housing market equity at the midway point of 2005, which is when the majority of real estate markets in the nation were booming at their peaks.

The crisis is now projected to effect 1 in 10 home owners in the nation and as many as 1 in 7 U.S. residents, which includes renters displaced by the crisis.

Home equity is at its lowest level since the 1980’s as a result of the crisis with falling home prices in the over-whelming majority of real estate markets tracked by Housing Predictor.

Barring major government intervention in the form of federally insured mortgages to millions of home owners threatened with losing homes, Housing Predictor forecasts 5.6 million properties will be foreclosed through 2011. Of these, more than two million homes have already been foreclosed. The crisis has been exacerbated by a growing number of investors, who are choosing to walk away from their properties rather than fight lenders to hold on to properties.

The flight to leave their properties with lenders is gaining momentum in California, Florida, Illinois, Michigan, Arizona and Nevada among other areas of the country as local market conditions deteriorate. However, that doesn’t necessarily mean it’s a bad time to buy a home. Veteran real estate investors usually look for down times like these in market cycles to make their best purchases.

The International Monetary Fund, a non-political organization, estimated last week that global credit losses alone would top $945 billion due to the credit crunch without considering the overall financial impact on the U.S. real estate market. The world’s largest banks have already taken write downs or loses of nearly $300 billion since the crisis began to unfold last summer, making the financial disaster the worst to hit the U.S. since the Great Depression in terms of banking.

The enormity of the housing crisis is being felt from coast to coast as it accelerates into the nation’s overall economy. Eight major national retail chains have filed for bankruptcy protection in light of slower sales, prompting thousands of store closings throughout the nation. Consumers are tightening their belts as a result of feeling less wealthy in terms of their homes equity, and the buying power of the U.S. dollar is eroding.

Federal intervention may not arrive soon enough to assist most consumers similar to the plight of the nation in the U.S. Savings and Loan Crisis when Congress and the White House waited too long before taking action.

The credit crisis has now extended globally with falling real estate prices in Europe, India and other countries.

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