WeezieBenobi

Housing Market Tracker - It's About Affordability, Stupid.

What I can't wrap my head around is that "...the average American can't afford an average home". Huh? Then who is purchasing these homes?

I will offer, from an admittedly basic understanding of economics and a good deal personal observation, that it is creative lending programs and government programs that are artificially increasing prices. The sub-prime mortgage mess is a prime example of this - creative lending and lax regulations allowed more buyers into a relatively limited, but highly demanded, market. Prices go up, financing becomes more creative, prices go up again... rinse and repeat.

But even before the current sub-prime debacle, I've always found special financing programs, FHA assistance and other government assistance for lower- (and yes, even mid-to-higher) income housing baffling. Years ago when I and my partner was looking for a house, we were priced out of bidding for one home by another couple who had less income but was getting a down payment subsidy. Well, if someone with a higher income was priced out, but another with a lower income got in, doesn't that indicate that perhaps there is something wrong?

A very clear indication that the programs are not just putting people in homes, but putting the very same homeowners in properties that realistically they can't afford, but are given the illusion they can.

Unfortunately, we're in a catch-22. If the mortgages went back to the standard 10/20% down for a fixed 15/30 year term and reasonable credit scores, then that would reduce the pool of buyers, reduce the demand for houses and drive down prices - sticking those who purchased recently (both those who could and those who could not) with an asset with a declining value, yet keeping this altruistic 'everyone has a right to own a home' without demanding that the buyer can afford the home, only props up prices and perpetuates this cycle.