Thursday, 6 October 2011

Bullshit Alert

Some absolute waffle written today by Ian Verrender. A crash in property prices? Don't bet on it
The fearmongers love to compare Australian real estate with America. They manipulate graphs and data to make it appear the local market is in as much trouble as the US one.

But American real estate still hasn't recovered. In case you missed it, an advertisement on the front page of the Asian edition of the Financial Times a fortnight ago had the real estate equivalent of the BOGOF (Buy One Get One Free) sale. The deal was, buy five American houses for $US200,000 ($209,000) all up and get the sixth one for just $US25,000.

The logic goes, if it happened there, it is bound to happen here. But you may as well compare Australia with Mars.

Ignoring that America is in recession and we are not [errr, what caused the US recession?], and that our population is concentrated on a narrow strip of coastal fringe [like Florida or California?], there are a host of other reasons that point to a soft landing in real estate [such as?], even in the worst case of a serious downturn in the domestic economy.

[My interjection here: Ignoring the fact that US unemployment was hovering around 4.5% and the economy was boom boom when houses started to slide, here comes the big one. The jewel in this crown of logic...]

The main difference is in the way our banks lend. Our mortgages are fully recourse whereas in the US, they are non-recourse. Default on a home loan here, and the bank will chase you for the outstanding cash and bankrupt you if need be. Not in America. If you owe double the value of your home, you can simply walk out, leave the keys in the door and let the bank take the pain.

Some Facts
  • 26 US states plus Washington DC have NON RECOURSE loans.
  • That leaves 24 states with full recourse loans. 
  • ALL STATES (and Washington) have had price falls between 1 and 5 years EXCEPT Alaska, North Dakota and Wyoming.
  • The best of the 'falling' 47 states and DC in the last 12 months was Arkansas where prices fell 0.50%, the worst Idaho with a fall of 15.66% last year.
In Summary - no relationship between recourse/non-recourse and prices could be identified:
  • Florida is coastal with full recourse like Australia and a basket case, 
  • Alaska and W Virginia are non-recourse and holding positive  
The Ministry of Propaganda needs to do a little better than that. Never let the facts get in the way of a good spruik. Financial experts? My arse they are...


  1. The guaranteed payday loans are repaid within a few weeks often by a post paid cheque, which you need to submit at the time of loan approval and it gets electronically credited on a pre-determined date.

  2. Rota, I've too have searched up, down, either side, round and round, articles on the internet regarding recourse and non-recourse loan states in the U.S. Most websites that speak of this have different information on which states have and have not recourse/non-recourse loans.

    From what I have read (emphasis on my seeking, ie may not be the case), only a handfull of states have true or full non-recourse loans. The rest have conditions regarding the loans.

    For instance;

    California, has non-recourse loans *BUT*, the leander does *NOT* have to issue such a loan. They (the lender) may agree to a non-recourse loan if the borrower has significant other assets to their name. Meaning??? Well, default the mortgage and it won't be the mortgage they come after.

    Texas, has non-recourse loans *BUT* The lender can still pursue a deficiency judgment to your favour.

    Then there is a smaller group of (but a non-exclusive group to non-recourse loan) states that are One Action States. These states, lenders are only permitted a single lawsuit to collect mortgage debt. Different laws for different states on how this plays out. California is also a One Action State.

    Considering (like California), even if the state has non-recourse loans, the lender can act on other laws to either get the money for the mortgage out of you, or come after other asssets you may have.

    Which is why states like Arizona, are truly and fully non-recourse.

    And on a final note, states like Michigan that has harsh penalties for mortgage defaults, also has Detroit.

    Thanks and regards,
    - BotRot