Long-Overdue Death-Spiral for Housing Prices

Turns out people stuck with negative equity in overpriced real estate are doing the sensible thing: just walking away. Heck, all they have to do is move into an apartment for a year and they might be able to buy it back at half price, no down payment! From the Financial Times:

Last year’s model: stricken US homeowners confound predictions “In the past, if a household in America experienced financial problems it tended to go delinquent on its credit cards, but kept on paying its mortgage,” says Malcolm Knight, head of the Bank for International Settlements, the central banks’ bank. “Now what seems to be happening is that people who have outstanding mortgages that are greater than the value of their home, or have negative amortisation mortgages, keep paying off their credit card balances but hand in the keys to their house ... these reactions to financial stress are not taken into account in the credit scoring models that are used to value residential mortgage-backed securities.”