There has been plenty of talk about the decline in housing lending the country into recession. A recovery is being held back since housing remains stagnant. The housing market always has up and downs. Usually a slowing economy then hurts the housing market. This time it was opposite. A down turn in housing caused a recession a depression for many.
What really caused the down turn? I would seem to me that overzelous policians in Washington would be my guess. Goverment mandates to put policies and programs in place to increase the rate of home ownership at an unrealistic and unhealthy pace. Instead of focusing policies to raise the standard of living for the lower and middle class Americans, better education & work programs they instead choose to lower requirements to purchase a home.
So policies were put into place without the proper checks and balances. Lending stardard became more and nore liberal as time pasted. The increased demand for housing fueled the economy but the out of control price increases created a frenzy lending to the bust. Two things in my opinion were the main causes.
First any buyer who wanted to could buy a home for no money down and have the seller pay the closing cost. So no skin in the game. The attitude was " so if we can't afford it we will sell in a couple years and make a big profit". It used to be that the primary reason people bought homes was to live in and raise a family. Secondary was the hope that over time the value of the home would increase and equity would be built paying down the mortgage. Now people were buying homes just for a quick profit!
Ok here's the second part of the problem. Buyers were puchasing with no money down and asking the seller to pay the closing costs. So lets say a condo was worth $200,000. The no down buyer offers the seller $206,000 with the seller paying $6,000 at closing towards the bueyrs closing costs. No problem for the seller, he got his $200,000. Now when this transaction is closed in the records the sales price shows $206,000 without any requirement that the $6,0000 concession be disclosed to the public or appraisers. Now stick with me here. A week after that closing another owner of a similar condo want to sell. They call in a realtor who look at the recent comps, sees the $206,000 sale and of course tells the seller that they should get about $206,000. So what happens when another no down buyer comes along? What is their offer going to be to the seller? About $212,000 wtith the seller paying $6,000 at closing towards the buyers closing costs. You see the pattern here right? It a matter of 1 month if would seem that the value of this condo went up 3%! This continues to happen every month or so. I addition buyers with the ability to put a reasonable down payment and pay their own closing cost are now being forced to pay higher and higher price to complete for the housing with these no down buyers!
Here's what needed to be done and still does. Seller concessions need to be disclosed. The sales price should be less any seller concession. Prices would not have run up as qucikly it this information had been disclosed. I estimate the half the price inflation in housing would not have happened. In half didn't happen we wouldn't have the massive losses that homeowners and lenders and expierancing now. If housing values were not artificially elavated maybe this entire housing mess never would have happened at all.
What do you think?