“should be priced at a level affordable on the median income”
Are you stupid. The price of a house should be what ever a willing seller is willing to sell it for if they can find a buyer at that price. THERE IS NO OTHER ANSWER. I don’t care if NOBODY can afford to buy. TOUGH.
I fear for you. Your post is the DUMBEST thing I have ever read. It is pure socialism. It is mandated price controls.
Maybe, I was unclear.
My point is banks should come up with intelligent formulas for appraising houses, rather than relying the temporary whims of speculators in the midst of a bubble. They should only give mortgages on real, sustainable, “unbubbled” values of homes. In the long run, the value of homes will be dependent upon the available income of potential buyers.
Yes, a buyer should be able pay whatever he is willing to pay for a home, but if that buyer wants to overpay, he should do it with his OWN MONEY, in the form of a higher down payment, not with the bank’s money.
If you have a housing market where the average homeowner is spending 60%, 70%, 80% (or 120%) of his income on his mortgage payment, those prices are unsustainable, (unless income dramatically increases in the market) and will inevitably plummet, leaving the loans undercollateralized.
Appraisals based strictly on the latest sale prices of similar homes, can create a self perpetuating bubble. Joe’s house sells for 20% more than it is worth, then Sally’s house down the street goes for 5% more than that (based upon the selling price of Joe’s house), then Bob’s house around the corner is sold for 5% more than that (based upon the selling price of Sally’s house), etc. etc., etc.
To further clarify, I am not talking about government price controls. I am talking about a RATIONAL market, where lenders come up with more sophisticated, reality based methods of appraising and make loans based upon the true, sustainable value of the collateral (houses), not based upon the fleeting, bubble inflated, current market prices.
I’m just asking banks to be smarter and act in the interest of their shareholders, by ensuring their secured loans are actually secured by sufficient collateral.