Editor’s note: The Washington, D.C.-based Center for Economic and Policy Research is sponsoring an essay contest on “Why there is no housing bubble.” The winner will win $1,000. Send a copy of your entry to firstname.lastname@example.org for possible publication on Inman News.
An opinion is just an opinion, but facts are facts, and no one can dispute the hard cold facts about the housing market. It’s true low interest rates and capital gain limitations up to $500,000 for a couple and $250,000 for a single homeowner have fueled sales, causing investors to come out of the woodwork; however, many home buyers, in an effort to get into the market, have purchased properties with no money down, 100 percent financing. These interest-only notes will eventually balloon up, escalate payments beyond the capacity of the homeowner and guess what? No down…no risk! What do these buyers do? They walk! The bubble bursts, and the cycle of short sales and foreclosures begins.
Many investors are finding that the properties they are buying at inflated prices, even with low interest rates, are not commanding the rent they need to be in the black. In Riverside County, Calif., for instance, there is a glut of rentals, but the income level of the population cannot pay the same rent as renters in south Orange County, also in Southern California, can pay. Now all of a sudden, the investors are in trouble because they are trying to carry notes on vacant properties. What do the investors do? They walk! Gotta cut your losses!
Talk to the insiders, the people who count–the loan servicing people–and you’ll find out that foreclosures are up! Today’s mortgages take two incomes to manage, and the minute one person loses his or her job, it’s a short road down the foreclosure path, a mere 120 days. If interest rates fluctuate just a little, the adjustable-rate mortgages that allowed those first-time buyers to become homeowners will be the same loans that cause them to lose their homes.
So, is the bubble going to burst? It may already have a slow leak.
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