Homestead mailing list

[Gene GeRue <genegerue AT ruralize.com>]

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.