Particularly interesting to me was the Housing Index chart (below), which shows 20 big U.S. cities and how their housing prices changed from the start of 2000 through 2003, 2006 and 2008. Each city's original entry for Jan-00 is benchmarked at 1.0, representing the value of a $100,000 house at that time:
Imagine having bought a home in Phoenix in the summer of 2006, paying $460,000 for it only to have it now be worth $240,000. Or having paid off a million dollar home in San Diego that now might bring in $600,000, if you're lucky. (Also note how cities like Cleveland and Dallas experienced almost no change in their real estate values over that 9-year period.)
The entire article's worth a read, as it provides a whole lot of background and context, and destroys some of the more common myths. Four key points are highlighted near the end:
"1. The mortgage problem has reached a magnitude that dwarfs the amounts of money spent elsewhere in the government sector. Dismissing the bailout as a "big government program" misses the point, given the amounts at stake in terms of global financial stability.
2. The mortgage problem extends far beyond subprime borrowers. Many prime borrowers now have negative equity in their homes.
3. The subprime problem reached a critical mass between 2003 and 2006, when the Republicans controlled the White House and Congress and did nothing. If you suggest that both parties are comparably deserving of blame, you are ignoring the salient data. [The well is also poisoned by the Swiftboating of prominent Democrats, such as Barney Frank and Chris Dodd, who fought hard to address the issue in the face of Republican footdragging.]
4. The rise in subprime lending from 2003 onward was not driven by government policies designed to make home ownership more affordable to low-income Americans or to stop redlining by banks. It was driven by innovative mortgage products, such as interest-only or negative amortization loans, and by the rise in the market for private label mortgage securities. Most subprime mortgages were not used for new home purchases."
1 comment:
That is a very interesting post. Point 4 is very insightful. Point 2 is a statement-of-fact, but I would add that it should be expected. There hasn't been a rise in the value of homes without a corresponding dip. Homes are always labeled a good long term investment, but my father-in-law calculated he made less than 10% per annum on his home when he sold it - that was a few years back when the market was still a few years from peak. And I think that was only considering starting price vs ending price - no mortgage, interest, insurance, upkeep etc.
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