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bbvista pp economic and industry analysis


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Unformatted text preview: property Teaser Rate first 2­years Margin of 5% or more Some loans were negative amortization. Financial Instability Hypothesis Financial Instability Hypothesis Stable Economic Times ­Investors take risk because they anticipate continued stability. Behavior leads to future instability: 3­stages of economic progress 3­stages of Economic Progress 3­stages of Economic Progress 1. Hedge Stage: Investors have $ from income to invest Invest safely ­ purchasing a home. 2.. 2 Speculative Stage: Riskier behavior Interest only borrowing with balloon payments. Investors expect: • Continued economic growth • Asset values not to decline • Interest rates to remain stable 3.. 3 Ponzi ­ Unit: Speculation phase Investors expect property values to continue rising. Negative amortization loans Key Economic Variables Key Economic Variables Gross domestic product Unemployment rates interest rates & inflation Budget Deficits Consumer sentiment Demand and supply shock Demand and supply shock Demand shock An event that affects demand for g...
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