Skip to comments.Housing Bubble Deflating: Will The Us Consumer Follow?
Posted on 09/10/2002 1:49:01 PM PDT by AdamSelene235
That is good that your friend is endeavoring to teach his children basic economics. Econ 101 was the first influence that turned me from a MASH and All In The Family watching indoctrinated lefty to a conservative.
The law of supply and demand alone refutes about 60% of leftist arguments.
The Elijah company also lists several other similar resources on the finance front and for other topics. I think you will find a wealth of info for the enterprising parents seeking to combat socialist indoctrination in that Elijah Company catalogue (it's good reading, in and of itself). I apologize I don't have the website address, but a quick search should get you there. The catalogue is free.
Investment Biker by Jim Rogers.....An around the world motorcycle adventure and economics lesson all in one book.
David Friedman (far more articulate than his father Milton) - Hidden Order is an excellent economics text. The Machinery of Freedom is probably the best political/economic text I've ever read.
Now if you really want to corrupt the boy, get him Robert Heinlein's The Moon is a Harsh Mistress. (not an economics text per se, but my favorite for corrupting the youth...heinlein should be a controlled substance)
For a general history of the U.S. economy, see my book, "The Entrepreneurial Adventure: A History of Business in the U.S." (Harcourt, 2000)
Might also effect the MBS market, which would take out the GSEs, which would take out the bond, stock and real estate markets simultaneously. There is a reason banks have multiplier restrictions. Pity the GSEs do not.
some economics and also some finance,
Here's a site that has many financial definitions/applications and links to further discussions http://biz.yahoo.com/edu/ (YAHOO-FINANCE
It is something of a myth, though, that Americans "don't save." Most Americans have medical covered through "forced savings" at work; they have retirement handled through "forced pensions" and Social Security---rightly or wrongly, they contribute money that they might not otherwise, and that IS a form of savings; and homes are usually a reason people save---but if mortgage interest deductions makes it logical to purchase homes on time, the incentive to save for that is gone.
When you factor medical "savings," pension and SS "savings," and the mortgage interest rate factor (and I have seen a study on this), guess what? Americans save about as much as everyone else. Now, granted, some countries have "forced" savings that exceed ours, but usually not private medical or retirement plans. If the main three things people "used" to save for are now handled by "forced savings," saving does not become that important. My parents saved to buy 1) a house; 2) to retire; and 3) for medical emergencies. Well, those things are all dealt with differently now. I'd prefer to go back, but it is delusional to pretend that the "forced savings" do not exist or are not having real economic effects.
Try Milton's son David. He is far more lively and articulate than his father(and often riotously funny). Hidden Order and the Machinery of Freedom are both good reads.
September 10, 2002
More Fall Behind on Mortgages, By QUEENA SOOK KIM
By QUEENA SOOK KIM
When Krista and Scott Mullins saw housing prices in the San Diego area spiraling upward in late 2000, they knew they had to move fast to buy a bigger home. "Would we be able to afford a house if we waited?" fretted Mrs. Mullins.
On a grassy one-acre spot in Vista, about 40 miles north of San Diego, they found a renovated house that was perfect for their two children. The asking price of $292,000 would double the couple's mortgage payments. But "surely, the bank wouldn't give us a loan if we couldn't afford it," Mrs. Mullins thought.
Enter an eager loan officer who helped the couple package their application. She showed them how to get a loan despite their high credit-card debt, and pushed them into a higher-interest-rate loan, the Mullinses say.
Last month, the couple filed for personal bankruptcy.
In recent years, the housing industry has bent over backwards to allow people like the Mullinses to buy houses they couldn't previously afford. Lenders require smaller down payments and allow buyers to devote more of their income to mortgage payments. And many borrowers are being lured by adjustable-rate mortgages with low teaser rates that quickly climb, pushing up house payments.
Now, the bill is coming due. In the second quarter, a record 1.23% of all home loans were in the foreclosure process, above the first quarter's tally of 1.10%, and surpassing the previous record of 1.14% in the first quarter of 1999, according to a report released Monday by the Mortgage Bankers Association of America, an industry group. That same report found 4.77% of all home loans outstanding were at least 30 days delinquent. That's one of the highest rates of the last decade, though it's well below the record delinquency rate of 6.07% in 1985.
The growing number of distressed borrowers is heightening fears that the nation's red-hot housing market is poised for a correction. If the delinquency rate worsens, lenders could tighten lending standards, making it harder for many potential home buyers to get financing and resulting in a weaker overall housing market. That would be bad news for the economy since surging housing prices are a big reason that consumers have kept spending even as the stock market has slumped.
Part of the reason the housing market got so hot is that lenders rushed out loans designed to cut monthly payments so that buyers could get bigger homes. It is some of those very loans that are now experiencing problems. One indication: Conventional adjustable-rate mortgages, popular with budget-stretched customers, currently have a 5.25% delinquency rate vs. a 2.75% rate for conventional fixed-rate mortgages.
In addition, credit counselors say they are getting more calls from people who are struggling to make their house payments. Auriton Solutions, a nonprofit credit-counseling agency based in St. Paul, Minn., says it now receives about 400 such calls a month, up from just 100 a month a year ago.
Doug Duncan, chief economist at the Mortgage Bankers Association, attributes the rising delinquency rate to the dual forces of a recession and a "huge innovation" in mortgage loans. Still, Mr. Duncan maintains that the slew of mortgage products have allowed people who were traditionally shut out by lenders the chance to become homebuyers.
Others see it differently. The realtor or loan officer says, "'Let's get them into a different kind of loan,' even if they know [the borrower] can't afford it," says James Croft, executive director of Mortgage Asset Research Institute, a Reston, Va.-based organization that tracks mortgage-industry fraud.
A Blurry Line
The line between loan deals that help consumers and those that hurt them can be blurry. Homebuilder Dominion Homes offered a temporary interest-rate discount a few years ago to lure marginal buyers into a new tract just outside Columbus, Ohio. That kept buyers' monthly payments attractively low during the first year. But now, the owners' monthly payments have shot up, and some residents have had to abandon their homes.
That's what happened to Rob Jones, a 50-year-old help-desk employee and his wife, a merchandise handler for Sears. In the summer of 1998, the couple turned to Dominion after another homebuilder rejected them for a loan because they owed $10,000 on car and credit-card bills. Dominion offered the Joneses a loan that shaved three percentage points off the going interest rate if they purchased a home in the builder's Southfield Village development. The catch was that the rate increased by a percentage point in each of the next three years.
The couple's monthly payments were $650 in the first year, but rose in the third year to $1,100, including higher-than-expected property taxes. The couple's income didn't keep pace. Last fall, the Joneses had to declare personal bankruptcy and give up their house. "I feel now that I wasn't told everything upfront," Mr. Jones says.
Today, nearly half of the 15-or-so homes on the Jones's block are empty or for sale. Dominion Homes defends its role, saying it was merely administering a government program backed by the Federal Housing Authority. The federal agency stopped the program in 1998 after determining it was "too aggressive," says Lori Steiner, a senior vice president for Dominion.
Aggressive lending practices tend to correlate with hot housing markets. In San Diego, for instance, the 22% year-over-year rise in the median home price to $368,000 has outpaced the roughly 4% increase in residents' median annual income to $49,000 over that period, says John Burns, a real estate consultant in Irvine, Calif.
Springboard, a nonprofit credit counseling service in Southern California, says that so far this year it has helped about 500 homeowners with mortgage-payment problems, a 67% increase from last year.
In the San Diego county town of Vista, the Mullins think their broker nudged them into a home they couldn't afford. The couple, who are in their 30s, had racked up $20,000 in credit-card debt after buying their first home in 1999. Mr. Mullins figured that monthly mortgage payments on the Vista home would eat up about 60% of their take-home salary and exceed the 36% of gross income that once was the banking industry's usual limit.
The couple say their broker, Patty Villanueva, steered them toward a "stated income program," which allows borrowers to simply write their income on an application without submitting tax returns. The interest rate on a stated-income program is between an eighth of a percentage point and one percentage point above the conventional rate.
Ms. Villanueva, who is self-employed, tells a somewhat different story. She says the couple's loan was approved based on their consumer credit score, which was good enough to qualify them for the "stated income program." The Mullinses' financial problems today are due to their free spending ways, not their mortgage payments, she says.
The Mullinses say their spending, which led to $50,000 in credit-card debt, has been mostly for home repairs and necessities such as kid's shoes and groceries.
-- Patrick Barta and Ruth Simon contributed to this article
Write to Queena Sook Kim at firstname.lastname@example.org
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Updated September 10, 2002
Unfortunately these savings simply do not exist. Social Security has been raided so many times it is now just a stack of IOU's. Benefits will either be reduced or the government (since it is the largest debtor in the room) will inflate its way out of the problem.( I assuming inflation is still possible??) Either way the weakest players will get screwed, as always.
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