About the housing-crisis

foreclosure

The housing-crisis affects us all in one way or another. People are scared and with good reason. We have never seen a financial meltdown of this magnitude before.

Many people bought overpriced homes and now they are struggling to make the mortgage payments. Home values have dropped so much that a lot of homeowners owe much more than the home is worth.
Many homeowners have walked away from their homes and let them fall into foreclosure.

Banks have foreclosed on so many homes that they are no longer able to pay back investors who they borrowed money from. Investors have seen this as an unreasonable risk, so they are holding on to their money.
This has caused a credit crunch. A financial meltdown that is affecting every country in the world.

There's a few questions we are all asking ourselves about the housing meltdown.

1. Why was the price of homes inflated in the first place?
2. Why did banks make such unstable loans?
3. Why did people get these loans?

Why was the price of homes inflated in the first place?
The price of homes has gone up so high because the labor to build them has gone up. The price of materials hasn't raised much at all over the last two decades.

The price of labor has risen for several reasons. First of all, there have been so many rules, codes, and regulations to comply with, that the cost of labor had to go up to cover the costs.
Second, the contractors and sub-contractors have raised labor prices to cover overhead expenses that didn't exist before like insurance and administration costs.
Third, contractors have steadily raised labor prices simply because they can. The banks put a pile of available cash in front of them because of easy credit. Contractors simply did what most of us would do; take the cash and see about getting a little more on the next project.

Why did banks make such unstable loans?

Banks have really gotten a bad rap for the housing crisis. Some of it is deserved, but not all. The cost of homes has gone way up, but wages haven't.
See my e book section on inflation and wages. To compensate for high priced homes and low wages, banks have had to make creative financing methods. For people in these situations the banks have two choices; make unstable loans or make no loan at all.

Why did people get these loans?

Many people are in too deep with their mortgages because they let the banks decide what was an acceptable amount of debt for them. Many of us suppose that lenders know their business and we trust their decisions.
Many borrowers got overzealous to buy once they found a home. Easy credit was there and and it made the sale go through easily.

Naturally, this is all my own opinion. I could be way off the mark and not know it.
What do you think about the housing crisis?

Feel free to share advice, ask questions, tell stories, or just rant for awhile!

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What Other Visitors Have Said

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repo man
I agree that credit was entirely too easy to get and that some of the home buyers should have been turned down or directed to a home they could truly ...

Will the tax credit go for remodels as well?
To my understanding, the $15,000 tax credit only goes to new home purchases, but home renovations will help the housing market the same way that new construction ...

$15,000 tax credit for new homes
Part of the stimulus package is going to include a $15,000 tax credit to new home buyers. To me that is huge.

I wonder if it will be enough to jumpstart ...

President/CEO
Good morning!

I am afraid you left the Government out of the picture.

Prices of housing soared for 2 reasons in addition to the ones you mention....

Home prices keep falling
The prices of homes are still falling because when we have a housing market correction, the home values return to fair market value.

According to the ...