While we hear frequent comparisons of the current economic crisis to the Great Depression, there is one way in which the current crisis differs greatly - we know why it happened! While economists and historians still debate the causes for the Great Depression, there is little doubt that today's problems originated with the housing market and subprime lending. As a result, housing prices have plummeted - especially in California - causing many people to lose their homes.
Many buyers now face the unenviable position of being "underwater" on their mortgage - owing more money than their home is worth. For some owners this is not a huge problem, since they are only slightly underwater and they can still afford to pay their mortgages. For others, the problem is enormous. For example, homes in Stockton, California have lost about half their value since the market's peak. Some homeowners (many of whom purchased homes at the peak of the market in 2005-2006) in these areas face no choice but to face foreclosure.
The magnitude of the problem - and one reason why our economic recovery will likely happen slowly - is this article detailing the ten most "underwater" areas in the country. Who is at the top of the list? Sin City - Las Vegas, Nevada - where 67.2% of mortgages are currently underwater. Check out more details and the top ten cities with homes of negative equity.
Monday, May 18, 2009
Sign of the Problem - 67.2% of Mortgages Underwater in Las Vegas
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Yes, this economic crisis can clearly be attributed to the unregulated spread of -- and collateralization of -- subprime mortgages. But those things happened because of several larger problems: an over-the-top ideological bias against government regulation of the financial industry; a weakening American manufacturing sector due to powerful geopolitical shifts, which made financial products into the most promising source of national profit; and a nationwide culture of debt, in which people and institutions at all levels of society lived beyond our means through borrowing.
Las Vegas may be paying for the immediate costs of the crisis through endemic home foreclosures. But we will all be paying for our multi-decade debt binge during the next ten years, by buying less, saving more, and generally feeling poorer. As our economy struggles to deleverage itself and assume a relatively more modest, less triumphalist role in the world, our leaders will have to navigate international waters carefully. Our economic model has been discredited in the eyes of many foreigners, and our most successful competitors all base their economies on a "state-capitalist" model rather than on an Anglo-American free market.
And against all of these challenges, the spectre of peak oil looms. There's not much easily accessible oil left to be discovered, and some fields are slowly depleting their capacity. Plus, most of the world's oil is controlled by state-run enterprises who can set whatever prices they want and prioritize their own countries' needs over the global marketplace. Energy will soon be getting much more expensive. We are not prepared.
None of these trends are good for Las Vegas. But they're not terrific for anywhere else in America either.
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