10 years that shook America's finances
Year 2007: Foreclosure tsunami begins
- The stock market hits an all-time high. Usually a leading indicator of the economy's health, it proves to be anything but as the stock market peaks on Oct. 9. The Standard & Poor's 500 reaches 1,565 and the Dow Jones Industrial Average hits 14,164 just months before the start of one the worst recessions in American history.
- After years of sustained growth, the real estate bubble begins to deflate. Real estate values begin a plunge in the fourth quarter of 2007 that will last into 2010 and cost U.S. mortgage holders trillions in home equity. Baby boomers would be hit particularly hard between 2007 and 2009. Even when you factor in future Social Security earnings, households headed by individuals aged 50 or older would see their real wealth decline by 18 percent, due in part to the loss of home equity.
- The credit crunch begins in August 2007 as lenders deal with a trifecta of bad news -- declining real estate values, the spread of toxic subprime mortgages and the slowing economy. The so-called TED spread, or the spread between the three-month Treasury yield and the three-month Libor, rises from 0.39 percent to 1.81 percent between July and August 2007. When the spread increases, it's a sign that lenders believe the risk of default on interbank loans is increasing.
- The foreclosure tsunami begins. Homeowners looking for refuge from resetting variable-rate mortgages are unable to refinance because falling real estate values put them "underwater." Mortgage delinquency rates for residential real estate tracked by the Mortgage Bankers Association begin a sustained rise, starting in September 2007.
-- Claes Bell