Hi Jay - glad to see you survived the storm. I've been through a few hurricanes - wonder how they compare to typhoons? Hurricane Betsy put an oak tree through my bedroom window - luckily I was awake and ran into the hall before that happened. My sister was in Biloxi for Hurricane Camille - that one rolled a huge propane tank all over my grandmother's house and smashed it to smithereens, and put a shrimp boat into my aunt's yard.
Weird thing about hurricanes is how beautiful the weather is the next day.
Re: "A Home Without Equity Is Just A Rental With Debt"
Not so, for several reasons. In the US, we get to deduct mortgage interest. A typical mortgage is for 30 years, and the payments are structured so that the first years, you're paying mostly interest. Depending on your tax situation, it can be a very nice deduction. So the tax break makes a mortgage very different from rent.
Another main difference is that foreclosure is very different from eviction for nonpayment of rent. We did have a situation in the early 1990's when the last real estate bubble popped, and people started defaulting all over the place. Surprisingly to me, but not so surprising when I understood the dynamics, foreclosures don't happen immediately, for the simple reason that there are just too many houses on the market to sell. It took years for all of those houses to be foreclosed and sold off - really the inventory wasn't all sold until the recent upswing a couple of years ago.
Mortgages are also different from rent because people take better care of their own property than someone else's. Making housing affordable to poor people means that there is a counter-trend to inner cities becoming abandoned, bombed out war zones. They buy houses in their neighborhoods, and they become invested in maintaining the social structure.
Preserving inner cities isn't an idle do-good thing. My guess is that in the long run it's cheaper than hiring more cops and building more prisons. Maintaining the tax base is cheaper in the long run, too. People pay tax where they live. Governments give incentives to businesses and to sports arenas to get them to come in and stay in, why not homeowners?
Fannie helps the average person by keeping interest rates about a percentage point lower. Mortgages aren't hot investments. There's the risk of default, and then you're stuck with trying to sell the property, and people have a tendency to prepay via refinancing when interest rates go down. Very unpredictable. Fannie packages them and makes them more attractive. It's a clever idea, I think.
Are there going to be defaults? Sure. But I suggest that anyone betting on the demise of Fannie and Freddie study the historic default rates for HUD loans and VA loans.
I think the US has the highest rate of homeownership in the world, doesn't it? So it's inevitable that there will be problems. People get divorced, they lose jobs, they get sick, they take on more than they can handle. Some are going to lose their homes, but most won't. |
