The Boston Globe has a good article on how home foreclosures in Massachusetts are allowing lower-income families to purchase houses in areas that were previously too expensive for them:
As devastating as it has been for families who have lost their homes, the foreclosure epidemic has presented an unusual opportunity for a small but growing group of buyers previously priced out of Boston's real estate market. Fernandes [a lower-income African immigrant], for example, got his building for $271,500, just two years after the prior owner agreed to pay $540,000 for it.
Immigrants and other property pioneers have long been a force in reviving downtrodden neighborhoods. But their purchases of foreclosed and abandoned properties are particularly crucial now because these new homeowners are key to stabilizing neighborhoods racked by the mortgage crisis...
Jose Cruz paid $255,000 in cash for a three-decker [in Boston] in April and invested $175,000 in rehabbing the apartments. He rented the units and says neighbors have congratulated him for his work. "The whole neighborhood is going to be better," Cruz said.
The building's previous owner bought it for $400,000 in December 2006 and financed the entire amount with two mortgages - a so-called 80/20 loan package that was popular during the boom years and is considered responsible for many foreclosures.
Those kinds of mortgages are now much harder to get. And while some buyers are borrowing the full value of the property - or more - they're getting homes at much cheaper prices than the prior owners paid.
When housing prices fall - especially in extremely expensive cities such as Boston - poor and lower-middle class homebuyers benefit. This point applies not only to the foreclosed properties discussed in the Globe article, but to other houses as well. For lower-income home buyers, it doesn't matter if they get a more affordable price because the house they're purchasing has gone through foreclosure or simply because real estate prices are down in the area more generally. Those lower-income families who rent and have no intention of buying a home also stand to benefit. Rent levels are sensitive to real estate prices; when the value of real estate in a given area falls, rents are likely to go down as well.
All of these points are straightforward applications of basic economics. When the price of any good falls, it becomes easier for lower-income consumers to purchase it. But this simple reality is too often ignored in the recent outcry over falling home values. It's important to remember that, in addition to making the real estate market more efficient, the bursting of the housing bubble has also created valuable new opportunities for lower-income families.
In Boston and other expensive cities, the government has for too long artificially propped up housing prices through restrictive zoning laws, government subsidization of dubious mortgages and other such measures. Left-liberals who have historically complained (with some justice) about the shortage of affordable low-income housing in these cities should be particularly enthusiastic about the recent decline in real estate prices. At the very least, the resulting benefit to lower-income families gives liberals - and the rest of us - additional reason to be skeptical about the desirability of government-subsidized efforts to prop up real estate prices by guaranteeing mortgages, bailing out lenders and borrowers, and other similar measures that seem to be politically popular at the moment. If we genuinely want to help the less affluent, we should let this market correction run its course.
UPDATE: I have revised the last paragraph to eliminate some poor phrasing.
I'm looking to see the names of those banks headlining the paper in the near future.
Oh! No! "They" can move into "our" neighborhood.
Are we arguing for letting them fail also? If not, then this post is disingenuous.
It seems to me that people make choices and then cry when those choices don't end up with fairy-tale endings.
didn't we all know- there is no such a thing as risk- not really...
Would you please define "bail out"? It seems to me that having the shareholders losing all of their investment can hardly be called that.
I do agree that we need to rethink our whole system of financial institution regulation if we have multiple cases of proping up institutions that can not be allowed to fail due to the chaos that would ensue, but the loose use of the term bail out covers up lots of sloppy thinking.
That's like arguing that if the cops allow Al Capone to rob banks, they've got to allow everyone else to rob banks, too.
You mean by writing something like,
?
Really, I think the bubble bursting works not so much to the benefit of people with less income as to people with more rationality. If "high income" people had been buying houses over the past five years, they could afford to keep them. It turns out that there were many more $900,000 townhouses than there were $250,000 income families looking for a nice two bedroom.
It's as though there were some unseen force at work.
Dream on...
Oh, and Joe Sixpack isn't losing "his" house. He's losing the bank's house. The people who are being foreclosed upon are the people who bought houses they couldn't afford -- people who put little or none of their own money into the purchase of the houses.
There may be a trend of the type you're discussing, but how does this article provide evidence of it? For example, how is Jose Cruz, who paid $255k cash for a multi-unit building and invested another $175k in rehabbing it in order to rent out the units, an example of someone who is "lower income" or "previously priced out" of the market, or even a "homebuyer" at all? The prior owner, who paid $400k, all of which was borrrowed, more likely fits these categories. Isn't it more apt to characterize Cruz as an entrepreneur with a wad of cash who seized a buying opportunity to acquire a new income-generating asset?
And while it is intuitive that some of the new homebuyers at lower prices are likely to be lower-income, how do we know that this is more common than the phenomenon that Cruz represents, of entrenpreneurs buying property with income or capital-accumulation potential on what they perceive as a dip?
But not to worry. Once they default, the bank takes a hit, maybe folds, but the successor turns around and sells the house back to the same folks who defaulted.
And why not? Since California is a non-recourse state the defaulters are free of the crushing debt burden of their overpriced house and have enough disposable cash to buy it back (actually another just like it) at a reasonable price.
Who will have the income to buy real estate in CA two years from now? The very people who walked away from their old house and burned their lender.
No bailouts. Let the (largely) foreign investors eat their losses when the banks collapse and their CDOs turn to ashes. They got taken by America big time. Serves 'em right. They'll be more careful in the wonderful new "global marketplace" the next time.
Not likely since their sub-sub-prime credit scores will make it difficult for them to secure financing the next time around (and financial companies will probably be less lax in their lending standards than during the peak of the bubble). However, many other lower income people who didn't buy (because they were more prudent, lucky, etc.) will stand to benefit.
i have spent the last 10 months helping my parents look for houses. Deeds and assessed value are public info in most places. MOST of the people who were selling were not able to come down on their no matter how overpriced they were. I got no sympathy. i had a real estate agent tell me to EXPECT 12% growth in the value of my house per year. I got a new agent.
So, tell me now, did Bear really fail?
If we genuinely want to help the less affluent, we should let this market correction run its course.
It doesn't count if it's not a handout from the government.
And my bigger point remains - we bail out the big guys, but not the little guys.
As for bailing out the big companies, I understand the purely pragmatic reasons for doing so--the entire economy might fail it we don't take on Fannie and Freddie--but I also think we should then subject the entire sector to stringent regulation. It's not an accident that all this happened just a few years after massive deregulation, specifically the repeal of the Glass-Steagall Act. If the public is bearing the risk, the public should get to set terms, too.
On the upside, I may now be able to afford a home in the expensive DC area. So there's that.
No they are not, if you understand them. If you only plan to be in a house 5 years and get a 5yr arm, you have a lower interest rate than you would have from a fixed for 5 years. That is smart, not a sucker. I currenlty have an interest only 5 yr ARM. But, I pay over $1000 a month to principal, not 0 like some idiots.
It's not an accident that all this happened just a few years after massive deregulation, specifically the repeal of the Glass-Steagall Act
No, it's not an accident that this happened after Congress got involved and started forcing lenders to lend in areas and to people who had no business getting these loans.
No. That's obviously wrong. Bear Stearns is gone. It failed. Can you tell us how it was bailed out?
The thing is I grew up in San Francisco, and within the time I was born in 83 until the early years of 2000, home prices nearly tripled in value. This left my generation unable to afford homes and have to move out of the city.
Artificially propping up the home prices has done nothing but make the young generation leave SF and have all the baby boomers who are ready to retire still in SF. It might even be a conspiracy that they just want to price out the ghetto folk in town but that is my own theory.
http://www.tranharry.com/
What happened?
I haven't been able to buy and it was beginning to scare me. My sisters both bought in the boom, in fear that they'd never be able to afford. I held out because I was scared too... but of ungodly payments. I mean, $300,000 for a 2 bed house? Sure the neighborhood was respectable, but DAMN people! That is all kinds of unreasonable.
But now, I'm glad I was scared to make the plunge... into what turned out to be a black hole. That same house I looked at for $300K was listed last week for $199K, which is far more reasonable.
Still too high, though. The neighborhood is good, but not worth that for just a 2 bed on nearly no lot; maybe it would be worth $125-$150K.
So, I'm gonna keep sitting out for some time still. Prices have a long way to drop still.
And to everyone who thinks my behavior is just exacerbating the problem, let me say this:
Get bent; you had your chance.
Isn't that how the whole feeding frenzy in housing took off when all the good jobs in IT and Telcom went away back in '01-'03? And isn't it the average person's fault for not drawing the correlation between a 1-1.75% Fed Rate, no real growth of jobs (outside of non-tradable goods/servs like health care and RE), and a booming RE market for much of the decade?
You see, RE booms usually occur, hand-in-hand, with some other industry like oil discovery, hi-tech, etc. It never takes off in a vacuum unless it was a bubble from the get-go.
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