According to Auction Alliance the number of bondholders under severe stress has risen to 35 000 in the fourth quarter of 2008, this is a sharp increase from the 8000 reported in the second quarter.
They went on to say that an estimated 80% of these bondholders would have to rid themselves of their homes either voluntarily or not. The bad figures are continuing to grow, despite some rather large rate cuts, due to other factors such as joblosses and a generally negative economic climate.
The US has given itself an estimated 2 years to recover from the terrible economic situation it is currently in but many economists are saying this is wishful thinking and the damage to the country’s economy will run far deeper than expected. The problems in the US started with a mortgage crisis and then bled through to many other sectors causing widespread financial damage to individuals and the country as a whole.
In South Africa there has been an increase in distressed sales and properties in possession that are auctioned off by creditors to recoup some of their loses. Although some lending institutions are less inclined to repossess properties due to the fact that there are increasingly fewer buyers in the market.
This is leading them to consider alternatives such as negotiating a lower monthly repayment that will enable the bondholder to keep paying for the property. This is surely preferable to them having thousands of repossessed properties on their books that they are unable to sell to cover the outstanding amount owed them.
One thing that may help is a very major rate cut in the near future that will actually free up cash in consumers’ pockets. Smaller rate cuts may be safer but they don’t immediately alleviate enough financial pressure from everyday people in any demonstrable way.
What do you think? Would a major rate cut be a good thing or would it hurt us in the long run?
