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  • From: Gene GeRue <genegerue AT ruralize.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Inflation --commentary
  • Date: Mon, 29 Sep 2008 09:16:35 -0500


On Sep 29, 2008, at 8:40 AM, Lynn Wigglesworth wrote:

I'm a very 'rooted' homebody, so it's hard for me to understand the need
to move and upgrade all the time. If you have a fixed rate mortgage and
don't plan to move, it doesn't really matter much what the market says
your house is worth.

In the seventies homeowners began viewing their homes as investments in addition to places to live. Through the mechanics of leverage and the effects of inflation average income people have since then been able increase their net worth and be more prepared for retirement. As family size increased so, too, did incomes, and so people sold their homes and bought bigger ones in better neighborhoods with better schools.

We are now going through the strongest price adjustment I have seen in the years since I began my real estate career January, 1969. A couple years later I opened my own office. One of the things I did was keep a record of interest rate changes. In those days the interest rates of FHA and GI loans would stay constant for years. Then they began changing several times a year. Then they began changing ever sooner, until it became a daily guessing game. During the four years I sold Phoenix real estate--2002-2006--the rates stayed around six percent. That is a rate lower than when I bought my first house in 1965, a GI loan at seven percent. I was amazed that the low rates held so long. The very low interest rate for a prolonged period of time is a strong contributing factor to the current mess. The other factor is the extremely lax lending guidelines. At no other time in my real estate career have I seen loans made with no paper documentation of borrowers' incomes and expenses. The no-down-payment, interest-only, variable-interest loan is great for a knowledgeable investor. It is a disaster for a family depending on paychecks to meet family budgets

Everyone connected to the real estate business, which includes forty or fifty, maybe more, different job sectors, from land appraisal to furniture salespeople to landscape maintenance workers, profited from the low interest/low qualification mortgage loans. Now the whole country gets to pay the bill for the unregulated greed frenzy that ensued.





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