"The mortgage credit crunch not only is affecting interest rates that home buyers are quoted, but is triggering changes in less visible areas such as minimum credit scores, geographic location and type of properties, even controls on who orders credit reports. These new restrictions are magnifying the importance of factors such as FICO credit scores and giving rise to lawsuits against major creditors such as American Express and Citibank." ... more
In the long run, this is exactly what we need to bring the outrageous cost of housing in this country back to reasonable levels.
Housing prices are so ludicrously high because banks have been willing to pump hundreds of millions of dollars into the market. Imagine what would happen to grocery prices if someone standing outside the grocery store handed a $100 voucher to anyone entering the building...you'd see bread for $8 a loaf and a six-pack of Pepsi would run $5, while a Mars Bar would set you back $1.79. It's inflation, focused on a single sector of the economy.
However, what we're going to see in the short run is deflation, which as any economist will tell you is just as wicked, if not more so, in its impact as inflation. The impact has not yet spread to all markets--some are still in inflationary mode--but if the easy $300,000 mortgages dry up, prices will fall, everywhere. There are rich people in America, yes, but we don't have tens of millions of homebuyers able to just pull a couple hundred Gs out of their bums to support inflated prices.
- - - - in a credit-scoring postnuclear Stone Age...