{"id":22890,"date":"2008-12-10T10:15:00","date_gmt":"2008-12-10T10:15:00","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=429"},"modified":"2008-12-10T10:15:00","modified_gmt":"2008-12-10T10:15:00","slug":"la-gran-depresion-ninja","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/la-gran-depresion-ninja\/","title":{"rendered":"The Great Ninja Depression."},"content":{"rendered":"
When discussing figures on mortgage defaults or property repossessions in the US, it is important to bear in mind the wide variety of historical and statistical criteria that have been and continue to be used to quantify the problem. For this reason, a great deal of data is incorrectly compared over time, leading to conclusions that will distort the correct strategy to be followed.<\/div>\n
\"\"<\/a>When discussing sub-prime mortgages and the credit crisis that has arisen in recent times, many analysts seek to draw parallels that might shed some light on the bleak outlook that lies ahead. That is why it is necessary to clarify concepts that are often confused.<\/p>\n

For example, the following chart shows the trend in the US mortgage default rate from 1979 to the present day. As we can see from the chart, the default rate currently stands at 7%, but we must bear in mind that at the height of the property bubble (second half of 2005) it was also significant, at around 5%. Therefore, although we believe that the peak of this figure is still some way off and that we are in the midst of an upward trend, it is curious, to say the least, that we find ourselves at levels \u00abonly\u00bb 2% above those of good times<\/span>.<\/p>\n

\"\"<\/a>
But here we can already start to qualify this: The National Delinquency Survey<\/a> (NDS) also provides statistics on the \u00abseriously delinquent mortgages<\/span>\u00bb at 90 days, something akin to \u00abseriously delinquent mortgages\u00bb (an unfortunate term), that is to say, those that are predictably heading straight for repossession and are no longer simply a temporary, one-off 30-day arrears. And within this group, they further distinguish between seriously delinquent mortgages prime<\/span> y sub-prime<\/span>. Whilst the prime<\/span> had a coefficient of serious arrears<\/span> In 2005, the figure stood at 1,82%; today it has risen to 2,87% \u2013 an increase that is greater than, but still comparable to, the rise shown in the previous graph. In contrast, the sub-prime<\/span> have soared to 19.55%. In other words, whilst the ratios have already become rather complicated for us in recent years, if we also try to compare the figures from the last few decades with those from the The Great Depression<\/span> of the 1930s (something many analysts have been doing recently), any parallels we might find will be the result of comparisons between figures, classifications and percentages that are so disparate that they will lead to highly misleading analyses.<\/p>\n

As we can read in the The Federal Response to Home Mortgage Distress<\/a>, at the height of the recession, around half of urban households with outstanding mortgages were bankrupt. But they struggled immensely to save their mortgages, and the number of repossessions was kept to the levels shown in the following graph, that is to say, reaching almost 14 annual repossessions per 1,000 mortgages.<\/span><\/p>\n

\"\"<\/a>Another crucial fact we need to be aware of before analysing the statistics is that mortgages taken out in the period leading up to the 1929 crash and in the years that followed were for only 50% of the property\u2019s value and had a term of no more than 5 or 7 years. \"\"<\/a>Therefore, the personal tragedies experienced by those households whose homes were repossessed almost 80 years ago were far more traumatic than the problems faced by a \u2018Ninja\u2019 (no income, no job, no assets) who hands over the keys to an estate agent this year or next. The situations are not comparable.<\/p>\n

In those days, a repossession meant the loss of a whole lifetime\u2019s financial savings and the effort put into buying a home. Today, however, in many cases it simply means having paid a somewhat expensive \u2018rent\u2019 for a few years in the form of a \u2018designer\u2019 mortgage instalment. And many will think that, as a result, the current social suffering will be less severe, but that would once again be merely a very superficial analysis. The fact that the social drama is less gruelling for the time being<\/span>, this does not necessarily mean that the economic and financial situation is any less severe. Far from it. If a defaulting borrower merely loses a few thousand $ (or \u20ac) paid in instalments towards a house they bought off-plan at a price higher than its current value, and with a stifling employment situation, they will fight far less hard to save their home from repossession than did debtors in serious financial difficulty in the 1930s.<\/p>\n

In other words, what at first glance might seem to be a qualitative advantage of our current situation compared with that experienced during the Great Depression is, in fact, quite the opposite. And we shall mention just a few of the aggravating factors that lead us to this conclusion:<\/p>\n