Tuesday, May 31, 2005
Rising Foreclosures & Increasing Home Values
Yesterday's Washington Post included an article on how the rising number of foreclosures is tied to the rapidly rising home values. The article looks most closely at Philadephia, and some of the piece is not applicable to DC (our foreclosure rates are very low). At the same time, the article is worth reading because it calls into question not only the wisdom of using certain mortgage products, but also whether we might not have gone too far in encouraging everyone to buy a home.
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3 comments:
Interesting. I was reading Paul Krugman the other day and he was speculating that the Fed might even have consciously decided to promote this kind of living beyond our means. I do remember a minor stink when Greenspan suggested people could look to ARMs, etc. as attractive options for buying homes. Not very responsible.
Krugman: http://www.nytimes.com/2005/05/27/opinion/27krugman.html?n=Top%2fOpinion%2fEditorials%20and%20Op%2dEd%2fOp%2dEd%2fColumnists
We should encourage people to own their own homes BUT also teach people how to keep their homes and stay out of foreclosure. My parents, my grandparents were poor to middling but owned their homes and it was all about a) not being under the control of the White man landlord and b) control over your own space. Lucky, or unlucky, their homes were never worth much so there was no equity to tap.
The current market has created some tempations that lead the poor and struggling to foreclosure. The current climate creates an environment where people are pushed to live beyond their means and it is considered acceptable.
Another issue is that you can rent better than you can buy, so when people go to buy they tend to favor their current renting standards instead of scaling down. This doesn't help either.
Yeah, I'm not really sure what to make of this issue, but I definitely think a little financial education would help us all. Some of these mortgage products do frighten me a bit (interest only?). But maybe I'm just conservative. Home ownership is a good thing because:
1. it promotes pride in your own space (often this does mean that owner occupied places are better maintained than rentals).
2. It gives you some control over your destiny. With the exception of eminent domain, nobody can force you from your home as long as you continue to make payments under terms you agreed to in the beginning (I hate condos because those fees can just keep going up).
I would definitely agree with MM's comment that people try to buy what they can really only afford to rent.
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