“The strong 2015 home buying season continues to be paced by outsized sales gains for first-time buyers,” noted Edward Pinto, codirector of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “These gains have been fueled in part by liberalized credit standards, which is creating demand pressure and driving real home prices higher. This is not a firm foundation upon which to build sustainable homeownership.”
“FHA continues to drive the first-time homebuyer market,” said Pinto. “However its high-risk loans fuel price swings that expose a new generation of homebuyers to the perils of unsustainable loans.”
“The typical first-time buyer today puts little money down and
chooses a mortgage that pays off very slowly,” said Oliner.
“This combination means that many first-
time buyers are only one
recession away from being significantly
underwater.”DYI Comments: Our Federal agencies such as FHA and our central bank with their sub atomic low interest rates has created an echo housing bubble. Not to the extent as the last go around but for many first time home buyers will end in a trail of tears when the next recession arrives. When the job losses mount and their income and savings (if they had any to begin with) dry up and the house value is below the mortgage, a new round of defaults will occur.
Due to massive government intervention in housing has morphed from a solid conservative financial building block of savings for the middle class into a crap shoot, rank speculation. If the government would get out of the real estate financing business and allow the market to take over the disruptive excesses would be only local, not national. An example of a local event is North Dakota with the fracking boom that pushed up the cost of housing substantially and now is in the process of going bust. With government intrusions removed (along with their guarantees) mortgage bankers would be writing loans with 20% down, with a low two times income house value, and a 15 year mortgage would be preferred. This would once again move home ownership back to affordable levels and end the boom and bust cycles nationwide.
The prescription that I just mentioned is exactly the advice for future homeowners. If you want to have a life not surrounding mortgage payments then purchase a house no more than 2x your income. If your income(s) is $50,000 then no more than $100,000 for the house. Not much house? You're right but not much of a mortgage. This makes it very possible to use a 15 year mortgage that not only does the obvious by paying off the house in half the time but a huge savings in interest expense. This will loosen up monies for retirement planning, and for some of the fun things in life along the way.
Its your choice....
DYI
No comments:
Post a Comment