Marketplace yesterday featured yet another story about the supposed housing market slump. This time the take was - yes, the housing market is in trouble, but actually prices haven't fallen enough and really should fall further.We all know the reasons for the slump - because they keep repeating them in the news - the wide availability of subprime mortgages allowed more people to buy more houses that were more expensive than they could afford. This made lots of people raise the prices on their houses and made lots of builders continue to build one McMansion after another. Now mortgage companies are realizing that subprime loans aren't so great and are not giving them out as much, plus people are defaulting on the ones they already have, with the result of too many houses on the market. Blah blah blah...
Okay, fair enough. But why is this such a hot topic of discussion on so many different news shows? The only people who will really be affected on a large scale are investors who own stock in housing-related companies, builders and/or mortgage people, and crazy people who have bought into the trend and decided to flip houses for a living. (About I week ago I heard a typical profile of an older woman who took advantage of adjustable-rate mortgages to buy several homes that she re-did but now can't sell, and in the meantime she had to refinance her mortgage on her main home to pay for the other homes and now it's shot up and she may lose her house.) For the rest of us, though, it's interesting because we own a house, but surely it shouldn't impact whether we buy or sell our house today!
I think instead what these stories do is just contribute to the craziness. They encourage people to go through "seller's delusion" and think their house is worth much more than it actually is. They encourage them to make poor decisions like trying to become a flipper. Instead of educating us, they just try to up the hype and hysteria. I guess in that way they're not much different from all other news items.
4 comments:
It will be interesting to see how large the fallout is.
While the likely "victims" include the people you've mentioned (builders/ investors, prospectors), there is also the average Joe/Jill that (unwisely) bought their house using a sub-prime loan. There are many stories of people losing their homes now as a result of their payments rising.
Also, a large amount of the US economy is driven by consumer spending, which is driven by wealth people have pulled out of their property appreciating in value. (Either by selling, or by taking out secondary loans). With that "wealth" drying up now, the risk is that comsumer spending will plummet, and the economy will go into a recession.
I'm not sure how bad it will be, but we're definitely living in interesting times...
I know I should be more understanding of the poor folks who got an adjustable rate morgage and now - suprise! - it adjusted and they are unable to make their payments...but I'm apparently a heartless person :-) I do worry about the impact overall to the economy, but it's not going to impact any decision to sell or not sell my house, which is what it seems like these newscasts want you to do.
You see it's interesting that you mention "and now - suprise! - it adjusted and they are unable to make their payments".
I think that if you can't read or understand the basic terms of a mortgage you shouldn't be buying a house. Very simple maths would show you that if you have a sub prime loand and then if it goes to prime + 0.5 you now can't afford your payments you shouldn't be buying. And overall people have been lucky so far since prime hasn't shot up.
The best thing to do nowadays would be to refinance an ARM loan rather than sticking to your old mortgages terms.
Great website to see how the price of your property has fluctuated against your zip code, your county, etc.
http://www.zillow.com
Great graphs
http://www.zillow.com/Charts.htm?chartDuration=5years&zpid=48662947
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