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Do We Have a Credit Crunch? Or Not?

Posted by: Peter Coy on August 6, 2007

My colleague Roben Farzad was traveling recently and heard complaints from people that it’s suddenly getting much harder to land a prime mortgage.

Undoubtedly true. It’s harder now than it was during the boom. The question is whether it’s too hard. In other words, are we entering a credit crunch, in which lenders tighten up so much that even people who are good risks can’t get money? crunch.jpg

I don’t think that’s happening yet, but I’d like to know what’s happening out there in America. Credit crunch or not?

Reader Comments


August 6, 2007 6:04 PM


If you really want to know how bad the credit crunch is, from day to day or even hour to hour, there is a barometer that you can watch all the time. It will tell you abolute truth down to the decimal point. It is called the yen.

When the yen strengthens, global credit is perceived to be tightening. When the yen weakens, the opposite. Perception is a big part of any credit crunch.

If you watch this barometer for a few days, you will see something strange. Certain sectors of the global stock market move exactly opposite the yen, day to day, hour to hour and even minute to minute. Not once in six months has this relationship been broken for a full day and rarely even for a few hours.

If credit is starting to tighten significantly, those stock market sectors are in big trouble.

Ryan Johnson

August 6, 2007 8:30 PM

Not yet. My mom just got a mortgage with no docs at 5 7/8 fixed for 5 years. I'd say we're not in a crunch just yet.


August 7, 2007 12:44 AM

What was the size of the average mortgage the last time we had a "normal" credit situation? I was always under the impression that the reason all these exotic financing operations came into being (or at least became dramatically more common) was that it allowed the lending and realty institutions to continue to pretend their products were affordable in the face of wildly spiraling housing prices.

Credit availability is the fulcrum of the lever that balances the consumer with the product that he or she wants. Maybe it's not the position of the fulcrum that's the problem, but the size of the weight at the other end.

George Jordan

August 9, 2007 7:59 PM

People buying a property now have to be more careful and frugal with their money, it's not their salary that is the big issue but their money management.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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