12 June, 2005

Well, Duh!

Apparently, some of the newer mortgage options are not a good idea. Gee, and I thought the interest-only mortage (i.e. renting your house forever) was a fine alternative.

My main quibble with this article was this sentence:

Those alternatives, called "exotic" by the Fed chief on Thursday, have played a big role in sustaining the four-year housing boom by making homes more affordable, which in turn stoked demand and drove prices higher and higher.

I don't know that it made homes more affordable as much as it made them more attainable. There are a lot of folks out there in over their heads in homes they can't hope to maintain, simply because they could make the monthly payment "on paper".

My concern, as I've watched new homes spring up in the last 5 years is that there is a highly unrealistic inflation going on in the single-owner real estate market. I foresee a lot of people being upside down in their houses for quite awhile, and that is no good for the home owner who can't build equity. Likewise it is no good for the bank who can't establish surety on the collateral or the next generation who won't be able to afford the most basic of properties.

Worse than that, I think that it has fed into the current American disease of "If I want it, I must have it." Sure, Corian countertops and en suite jacuzzis are lovely. However, if you are earning $50,000 a year, they should probably be further down on your list.


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