How Real Is The Housing Crisis?
July 21st, 2008
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In the St. Charles (IL) Journal, writer Keith McCulloh raises an interesting question: “Is there really a housing crisis?”
McCulloh, president of the local Realtor Association, makes these points:
First, his community is doing relatively well — he says home values have only dropped 2.2 percent during the past year.
Second, he says “there are 120 million homes in this country, one third of which are owned free and clear; so there is no crisis for those homeowners.
“Of the 80 million homes with mortgages, 50 percent of those were bought before 2000. Even with the recent fluctuations in home values, on average those homes are worth at least 30 percent more than they were when they were purchased. Yes, they may get a little less than if they had sold their home a year ago; but if they don’t sell, they have lost nothing. So, no crisis for those homeowners either.”
I read this and though, hmmm, what to think, what to think….
McCulloh is entirely right when he says all local markets are different and that some are plainly doing better than others.
But I’m not too sure about the rest.
For instance, that 2.2 percent drop in prices. Is this really accurate? It may well be that reported and recorded prices have dropped 2.2 percent, but do those prices show “seller contributions” equal to 3 to 6 percent of the sale price or discounts inside a transaction? Do sellers now pay transfer taxes whereas two years ago the buyers paid?
As to the idea that 40 million owner-occupied homes were bought prior to 2000, that’s an interesting statistic but perhaps not entirely relevant. The bigger question is this: How many homes have been refinanced since 2000? How many homes now have toxic loans? How many of those properties now have home equity lines of credit which have been exhausted — or cut off? How many local properties are financed with safe and secure FHA mortgages and how many have option ARMs that will re-set next year or the year after?
Truth is, even if your home is held free and clear of any mortgage, if your community has foreclosures you will feel the impact. How? Lower home values mean smaller tax collections and fewer public services.
For the full story, see: YOUR PLACE TO CALL HOME: Is there really a housing crisis?
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on Monday, July 21st, 2008 at 3:08 am and is filed under FHA.
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July 21st, 2008 at 3:07 pm
Peter, here in Sacramento and in California in general, values have fallen 50% in the last couple of years.
The crisis this has created is far beyond that of resetting subprime and neg am loans. Even those folks with “good” mortgages are walking away from homes at the first hiccup. Why struggle for years to save a home worth $300k on which you owe $425k? Hence the “buy and bail” problem.
But the bigger issue to me is the “negative wealth effect”, the perception of the loss of wealth felt not just by troubled homeowners but felt equally by all homeowners. Combined with the erosion of 401k values, consumer spending is curtailed, jobs are affected, and the spiral gets worse.
And, a year ago, the pundits were saying this would never spill out of the subprime arena.
August 1st, 2008 at 7:36 am
nobody talk about the real problem with the housing crisis:
1.-taxes All the cities in the country have innadecuate methodo to calculate the tax. solution:no more tax over the property and add 3 or 4 cents to the consumer taxes depend of the city.
2.- insurance. always more insurance when the catastrofe come to our city then the gov.pay for that ?where is the money that i paid.
solution: no more property insurance