Oct 29 2009
Okay so everyone is aware by now that the housing bubble was created by people borrowing more than they could afford. Money was easy to come by and you could buy a home, sell it for a profit. People thought they were geniuses. Prices rose. Even better, people now had money for serious down payments to buy the dream homes they “deserved”, or more likely thought, hey prices are going up by 4-8% a year, I can buy a more expensive one, live like a player for a few years, then sell it. A more expensive “investment” home would yield a higher return. Take the profit from that and buy a home outright, retire at 38 and live the good life.
Then reality set in, buyers became scarce. Owners couldn’t keep making mortgage payments, home repairs, and everyday living expenses. Banks started foreclosing so they looked at their loose lending policies and tightened them up. Resulting in even fewer buyers. The market adjusted, prices returned to realistic and even bargain levels.
In short people who shouldn’t have had money to play with, and little experience with housing, bought houses. Creating a Market Bubble.
In Georgia, in my favorite area, you can buy a 3 bedroom 2bath for $185,000. And if there’s a little bit of repair work needed, you can cut that price by a third. Now if you’re smart and ambitious, you’ve got money saved up, you can figure out cost of owning, repairing and living, you can capitalize on this in a big way. Using a few simple calculations you can even see if its smarter to rent it out generate a tax sheltered cash flow, or live in the home.
If you have no money to purchase, and more importantly have no experience owning a home. The government will give you $8,000 tax credit for buying a new house. You’ll also qualify for for 1st time lender rates, and even with somewhat questionable credit, FHA secured loans. Now if this is a second home, or a rental property, you are exclnded from these bonuses.
In short, people with limited cash and no experience are now encouraged and able to buy homes.
Now, I know, I’ve seen this approach before…