I know that most of you would like to blame everything that's going wrong in this country on George Bush[and he deserves the credit for much of it...the war for sure].
But I would like to point out that a lot of our problems are due to the American people buying things ,that they cannot afford ,by overextending their credit card use and abuse.
The direct result of the housing foreclosures is due to people who bought houses ,that they were unqualified to buy ,because they never really read their contracts before they bought,because they could not afford to pay the monthly payments specified in their contracts.
The same thing is also happening in the repossession of high priced automobiles ,which they also could not afford to buy ,if they had actually read their contracts in the first place.
You can try to put the blame on greedy money lenders if you want...but what happened to "Let the buyer beware"?
Just because you want something ,doesn't mean you can afford it.
What ever happened to "if you can't afford it ,do without it ,until you can afford it"?
The direct result of the housing foreclosures is due to people who bought houses ,that they were unqualified to buy ,because they never really read their contracts before they bought,because they could not afford to pay the monthly payments specified in their contracts.
That's maybe not true in every case. They knew interest rates would rocket three years into their mortgage, but assumed that, by that time, the house would have increased so much in value, and the market would still be so 'hot', they could sell it and start over. Ordinary people bet on the housing bubble and lost, as did many experts - let's not forget that banks got caught out, too.
Possibly people thought they were getting good advice, and that getting into property ownership - however it was done - would always beat paying rent to a landlord. The most recent Nobel Prize winners in economics point out that markets can be inefficient because 'Sometimes sellers and consumers do not have the same information about a product, or powerful groups influence events.'www.washingtonpost.com
"Buyer beware" is still good advice (and I'm with you on the "do without" principle, although that's not practical when buying a house, for most of us), but markets and products are so sophisticated these days that consumers can't be expected to be able to adequately judge the worth of everything they buy or invest in. We don't have the time or resources to investigate financial instruments, lead content in the paint on toys, build quality of cars, the effects of antibiotics in meat... and so on, and so on.
The libertarian market ideal of complete deregulation and everyone looking out for themselves might work in a village economy that produced nothing more complex than cartwheels, but it doesn't help anyone - except ruthless corporations - in the real world.
Maybe, but property prices have increased more than household incomes over the past couple of decades.
'People taking their first step on to the property ladder paid an average of £159,494 for a home last year, compared with around £52,674 in 1997, according to housing charity Shelter.
It says the situation is even worse in London, with the average cost of first-time buyer properties in the capital jumping by 250% to nearly £260,000 over the past 10 years.
However, the average weekly income of a family in the UK has increased by just 53% during the same period, to an average of £900.'sky.com
Those figures are from the UK, but I'm sure the situation is similar in the US and Canada. Today's home owners have to borrow more just to get the same kind of house as previous generations did - it's not all down to greed and impulsiveness.
A number of interesting facts come to light on investigating US housing.
It does look as though this 'bubble' is inflated by a consuming American ambition to own a home.If home buying is very easy and public sentiment is that a home is a great investment, then there's trouble. It's not, in fact, much of an investment.
US home ownership was standing at 62% in 2002 but it reached a peak of 69% quite recently.[Source Wikipedia on the 'Housing bubble'] That sounds a lot but even then US home ownership is lower than Britain's, which is second in the Group of Seven (sometimes termed Eight, Russia being the Eighth) industrialised countries. Italy is first. [Source: Bloomberg]
Historically, American housing has not been the great investment that the public often thinks. From 1890 to 1940, adjusted for inflation, the growth was 0.4% a year.From then it has been at 0.7% for decades.Sudden rises are contrary to history and liable to 'correction', which may be sharp but is more likely to be a long period of stagnation or gradual falling back, adjusted for inflation.
Britain's housing market has not been suffering as America's has.That may be (my speculation) because home ownership is already strongly and quite long entrenched, so there has not been quite the same rush to acquire. What's more, there is no tax relief on mortgages here any more. That went some years ago.No doubt the government decided that giving people tax relief whereby they could claim mortgage interest against income was over generous. It existed to encourage people to own their own houses.When so many people owned their homes it had less point.There was, in any case, no point in fuelling a strong housing market by making acquisition at higher prices cheaper than it would otherwise be.
The people who have 'burned their fingers' here are often 'buy to let' investors.They don't merit much sympathy.Such people must have suffered in America. They commonly buy new properties, even 'off plan', so at top price,and expect the rent to cover the mortgage and outgoings while the underlying asset increases in value. It doesn't take much of a change in interest rates to make this impossible.Banking on an invariable strong increase in value is itself a short sighted policy.
British people now have houses typically priced at 5 times their income. From memory, Americans have houses at only 3 times theirs. You either have a way to go or our market is unsustainable
Some housing is still very strong.Prime residential property in London has increased in price by 30% in the last twelve months. It's now at the equivalent of $60,000 a square metre. Another place in Europe with comparable 'top end' increase is Monaco, at 35% and a price of over $50,000 a square metre of habitable space [1 square metre = 10.7 square feet]. You see, it's true that the richest get richer and don't notice any 'recession': Monaco is a tax haven. 'Next door', down the road in Antibes and no tax haven (and a national wealth tax for French residents) the price is but $13,000 per sq. m.and the increase 5%.
I must admit, I never read all of the contract I signed when buying our house. I did read the part where the monthly payment was something I could afford, and the part where we have a fixed interest rate, though. Also, the agent we worked with went through our finances penny by penny to ensure we could afford the house. We knew going into it what we were doing. A lot of the people affected by this crisis do not seem to have had that kind of help. A lot of blame can be spread around for people buying things they can't afford and being convinced to sign things they haven't read, but a lot of it comes down to personal responsibility.
Posts: 4534 | Location: Rochester, NY, USA | Registered: 06-03-02
