When did we start to borrow to purchase a house?
Asked by
MatChup (
204
)
February 2nd, 2011
I am sure there was a time when in order to purchase a house you had to have cash to pay for it or 100% collateral to cover the cost of the house as in exchange a piece of land for a house or some other possessions that would qualify you to purchase such property. If we would have kept this system, house prices would still be substantially low compared to current prices.
To make things simple we can summarize that the reason why house prices skyrocketed as high as they got was because of high demand. As demand increased so did house prices, making them so inflated that sooner or later would lead to the infamous housing bubble.
Since we were reaching a point where the economy was getting stagnant, investors devised a plan to allow anybody who was able to breathe to qualify to purchase a house regardless of their credit history and whether or not they had a security blanket to pay for the house. When people get too greedy, they bend the rules, seek approval and bribe politicians to get things moving. It was obvious that whatever marked up went up, one day had to come back down and it did. I still believe the housing market hasn’t bottomed yet and it will reach a lower level then remain there for a good number of years.
What have you learned from this lesson? Will history repeat again 50 to 100 years from now –referring to the concept of a cyclic economy?
If you would have been in the power seat, how would you have handled this situation to begin with in order to avoid the chaos we went through?
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6 Answers
Offering things for credit is about as old as mankind. Even with bartering, the exchange can be deferred from the receipt of one item to the payment. Fraud and corruption has also been around that long, so there really is nothing new here.
Home mortgages really took off after WWII. The feds gave returning soldiers access to very low cost mortgages. This encouraged them to buy houses, which raised demand for houses, which encouraged a lot more people to build a lot more houses, and the rest, as they say, is history. Ending with your very pessimistic prognosis.
I’m not really knowledgeable about mortgage regulations, but for a start, I think that allowing people to borrow more that 80% of the value of the house was a big mistake. Hopefully the standards for allowing people to borrow will remain a good deal more conservative than they were leading up to the housing bubble.
@wundayatta, “Ending with your very pessimistic prognosis.” I thought I was being realistic not pessimistic, hmmmm.
@YARNLADY, I guess I haven’t lived long enough to know any better, huh!
I don’t think that’s all of the reason housing prices are so high now. We have much nicer amenities in houses now and building supplies and the cost of labor have gone way up.
There is a balance. When people started buying houses with no money down that I wouldn’t even rent to I knew there would be a crash coming.
In the olden days there were a lot of homesteaders, that may not have had the money to buy land, but they put sweat equity into building their own homes. You had to work for a lot of things we take for granted now. We didn’t have an obesity epidemic either.
@MatChup You very well could be being realistic, but that doesn’t stop it from being a pessimistic prognosis. Win win.
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