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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (99118)	1/6/2008 1:15:57 AM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

I would suggest you save up the money you need to purchase what you want. Before government subsidized home mortgages existed this is what happened. People were able to obtain five year mortgages if their income and credit supported this loan. And homes were affordable. Why are homes now so unaffordable without a massive mortgage? In part because massive long-term mortgages exist. Over thousands of years the price of real estate has risen and fallen with incomes. Then suddenly after 1945 this was no longer the case, for two reasons. When you look at a chart of GDP-adjusted home prices you will quickly see that the creation of government subsidized home mortgages merely pushed up home prices. And every time the duration of these mortgages were increased from 18 years to 25 to 30, and features like no down-payment etc, etc, were added "to make owning a home more affordable" it merely pushed up the price of homes further. Having grown up under this welfare regime, you can't imagine any other manner of living, and have come to believe that debt is absolutely essential to your well-being. I think you've been misled, no doubt by any number of propaganda pieces you have read over the years. I mentioned there was a second reason as well. Subsidized loan availability by itself would not have driven this shift in what type of assets people use to hold their wealth. The income tax was created in 1918, and loan interest was deductible, but this affected only the top 3% of the population. During WW-II the income tax was broadened to affect 75% of the population, to pay for the war. Does it come as any surprise that the percentage of home ownership rose from 28% in 1926 to roughly 70% today? Home ownership, and home prices, are subsidized by income tax deductions. What about demand? There was a small rise in home prices after WW-I which corrected after a few years. But mortgages were still of 5 year duration and only a tiny percentage of the population had any use for a income tax deduction. Home price are not experiencing post WW-II demand, they are experiencing massive subsidies. This leads you to believe that even more subsidies are required to make homes more affordable. You're chasing your tail. .