This is no longer a problem confined to the subprime market of reckless borrowers and the irresponsible lenders who egged them on. No one was let untouched. Even if you have a mortgage you can afford and a home you love, the fact is your home is likely worth less than it was just a few years ago, and that puts a huge crimp in your financial planning.
| You convinced yourself that your home would continue to appreciate at a double-digit annual rate forever, with no possible downside. You baked those high values into your future financial plans and that made you feel richer than you actually were. But your bubble-induced sense of security led you to spend more and save less because you were so sure your mountain of home equity would pay for retirement or the kids’ college tuition or the new room addition. But it isn’t playing out the way you imagined. Home values have plummeted back to 2004 levels and are still falling as I write this in November 2008. |
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| Suddenly, you must face the fact that your home is not going to fund all those capital expenses you were planning. That not only affects your long-term outlook, it could also endanger your short-term security. The newest housing trend sweeping the country is banks rescinding home equity lines of credit because falling home values make those open credit lines too risky. Any family that has relied on a HELOC as an emergency cash fund could be in trouble in 2009; your bank may remove your safety net. And let’s face it, 2009 is shaping up to be the worst year in decades to sell a home, even if you have equity. There is a 10-month backlog of homes on the market; that’s more than double the level five years ago. A flood of bank-foreclosed homes, or homes up for a short sale (when what your home sells for is less than your remaining mortgage balance, and the bank forgives the difference), are a big factor in the market glut, but so is the frozen lending market. Banks do not want to lend money right now; the only borrowers they will even consider must jump through the highest qualifying hoops in more than a decade. That reduces the pool of prospective buyers of your home—including buyers who must turn around and sell their home in the same frozen market. Renters are not immune either. Tens of thousands of renters have be n kicked out of their homes since 2007 as their landlords fell behind on their mortgage payments and the bank foreclosed on the property . |
| These were renters who wrote the check on time every month and had no clue that their home was at risk until they had an official note tacked to the front door telling them they had 30 days to vacate. There will be no magical turnaround in 2009. The best we can hope for is a slowing of homes that fall into foreclosure. I have a moral problem with bailing out homeowners and lenders who had no right to do the deals they did. I certainly do not support a bailout of people who bought a home that was never affordable under any rational assessment, but I do think we are obliged to help those who, with moderate assistance today, can afford to stay in their home. Keeping those homeowners in their homes is the most effective way to stabilize the housing market. And let’s be clear: h ere will be no widespread stabilization in our financial markets until the housing markets stabilize; home foreclosures are the epicenter of the credit crisis. As I write, some major lenders have finally stepped up their effort to modify loans for some homeowners. And I expect we will se more and greater effort by lenders and the federal government to slow down the pace of foreclosures in 2009. Still, we should all expect that this year will continue to be a very tough time for real estate. |
