As of December , 1. These low interest loans are guaranteed by the FHA. These loans could be forgiven after five years so long borrowers stayed current on their mortgage payments. The Recommendations The most obvious recommendation is to have stricter regulation over real estate and mortgage agents. The lax regulation and oversight of the SROs in the industry, along with the lack of actual agent training, is still a big problem.
The tougher penalties could have deterred agents of making false claims to home buyers and homeowners, fabricating documents, etc. I can say this from experience; I own a real estate license for the purpose of providing land banking to qualified investors as part of a complete investment portfolio.
Now that the bubble popped, and the administration stepped in, the failure could have been minimized if there was a clear assessment of the situation; however, not even the banks knew how bad it was. The reason for this was that the pressure from buyers, agents, brokers, and management to fund the loan while being understaffed was so great that no clear records were kept and funding sometimes occurred with missing signatures.
The biggest mistake was that no clear steps and guidelines were provided by the government to the banks in how to deal with the issue.
Therefore, banks are still attempting to modify home loans to reduce total monthly payments on mortgage, credit card and other debt to 31 percent of income. As the Shilling explains, this is only delaying foreclosures as supposed to solving the issue. One main thing the government should address is unemployment.
No matter how much the feds lower interest rates to boost home sales and, thus, home prices, if people are not gainfully employed in this uncertain economic climate they are not going to buy homes. There is no easy way to correct the situation. Throwing money without a detailed plan and making it up as we go along hoping it works des not cut it.
The important thing is to clearly define the mission and create a strategy to accomplish it. Inherent Risks of Government Involvement The governments, namely the central banks, are in charge of overseeing the market and implement the necessary monetary policy based on the situation.
It shows that average quality-adjusted single-family house prices, corrected for overall inflation, have risen a paltry 1. Since , year fixed-rate mortgage rates in real terms have averaged 4. No wonder only about a third of millennials owned their homes in , compared to half of Generation X at a similar age in and half of Baby Boomers in The homeownership rate for people under 35 has declined by 7.
To be sure, millennials do face financial strains not encountered by previous generations. Some millennials were caught up in the subprime mortgage boom and collapse, and remain scarred by it.
They believed they could buy houses with no money down and never shell out a dime because continuing rapid appreciation would allow for continual refinancings. So the bursting of the subprime mortgage bubble and subsequent one-third decline in house prices was a rude awakening, especially since it was the first nationwide drop in values since the s. In the aftermath, mortgage lending standards have been dramatically tightened and millennium incomes and net worth growth weak. So by choice or necessity, many millennials are renters.
Since the housing collapse, multi-family housing starts, mostly rental apartments, have surged past their previous , annual rate level to , in September. But single-family starts, after nosediving from a 1.
Short sales, in which the lender forgives the difference between the sale price and the mortgage principal, closed 13 percent below market value. As of the second quarter of , RealtyTrac found that real-estate-owned sales were at a huge 40 percent discount while short sale discounts averaged 12 percent. These discounts tend to drag down the prices of other existing houses and force homebuilders to sell properties below cost in order to compete.
The trigger of renewed foreclosures will probably initiate another big drop in house prices, returning them to the long-term trend identified by Robert Shiller of Yale University. This measure of median single-family-house prices is adjusted for general inflation and for the tendency of houses to get bigger over time and therefore more expensive.
With these two corrections, prices in were about the same as they were a century earlier. Then came the bubble, followed by collapse, but it still will take a 22 percent decline to return prices to the flat long-term trend that prevailed between and
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