Tuesday, October 17, 2006

Maybe not EVERYONE should own a home

Edit note: The title of this post is not meant to convey a classist or elitist attitude. Worthiness is not the context of the statement but rather, financial prudence. Many may "deserve" to buy a house but that doesn't make them capable of keeping it.

This chart shows home ownership as a percentage of the national population. While the goal of increasing ownership may have good intentions, it may not be realistic. Is it a good thing to promote buying overpriced assets? That may sound like a slanted take, but the reality is that 5% represents people buying things they can't afford. Is that something we should look at and consider to be a good thing? It would be one thing if they (houses) were within reach of buyers by traditional lending standards, not bought with "creative" or "toxic" loans, and (fundamentally) valued at or close to a historically normal level.

So I believe this 5% increase, which also represents a 5% increase in historical levels of Demand, is due to the following:

1. Speculation - the expectation of appreciation, that borrowed money would make them more money. People buying befoer they could afford so that they could start getting rich quicker, or before they were "priced out forever."

2. Dangerously "creative" loans. Yes, they monthly payments look low. Especially when you're only paying the interest on the loan, or an even lesser teaser rate. These loans actually work and can be advantageous in an appreciating market, but if the market turns, those borrowers can find themselves in deep kimshi.

3. Fraud - realtors and lenders "helping" people buy home that they really can't afford, either through deception, or taking advantage of "unsophisticated buyers", not advising them and not practicing "full disclosure". There is also outright fraud, with lenders "fixing" the numbers of "no-doc" loans and appraisers overvaluing homes.

Does it make sense that home-ownership can go from 64% to 69% (almost an 8% increase) while wages are stagnant and home prices going thru the roof? No wonder foreclosures are soaring.


At 1:54 PM, Blogger Rob Dawg said...

The correct phrase is; "not everyone can purchase a home."

At 11:31 AM, Blogger InfidelSix said...

Duly noted.

I'm sure you know I was using "should" in the sense of "financially prudent and/or capable" and not as a judgement of whether certain people are "deserving".

At 11:15 AM, Blogger Sylvia Welman said...

Let those who commited financial suicide lose. There are plenty responcible individuals out here waiting with great Fico's and cash. The only unknown now is how long this will take to shake out.

At 12:31 PM, Blogger FlyingMonkeyWarrior said...


Thought I would check out your sight.

My Dad was a 25 year USAF, Non Com.
Strategic Air Command RBS and CIA (which no one knew untill he was retired)


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