Reasons For Current Financial Housing Crisis

By Quiblok Admin, on November 15th, 2010

What does it mean to “own a home”? Typically anyone who holds title to a home is considered to be a householder even if they have zero or minus equity in the home. By this imprecise definition of home ownership, the portion of Americans who own their own home has been above 60% for the past half century. Before the flood of foreclosures took its toll the percentage was mostly estimated in the range of 66-68% in 2008. The silent policy of the nation has been clearly tilted toward buying versus renting for decades. The only significant leftover form of consumer credit interest deductible for income tax purposes is interest paid on a home loan.. Many, have even purchased second homes to use as home vacation rentals

Present Motgage crisis was contributed by the incentive for home ownership is inclusion of interest on home equity lines of credit (HELOC) whether the money borrowed is used for the purchase or improvement of a personal residence. Ironically this generous interpretation which encouraged homeowners to use Home Equity Lines of Credit (HELOC) to buy all sorts of things they otherwise could not afford

Many homeowners are only in a negative equity position because of second mortgages . If one in four borrowers is underwater on their mortgage, it is probable a stretch to let in them as homeowners. Not only do they not have any equity in their home, they owe more than it is worth. It is estimated that 5.3 million U.S. households have negative equity exceeding 20% of their home’s present value. Vacation Rentals By owner are yet more profitable given they get a rent from travelers.

It would be inaccurate and misleading to imply that the absolute majority of these homeowners are in a negative equity position due to the combined debt from the first mortgage and subsequent HELOC. Many of them made down payments as high as 20% and do not have a HELOC yet they have lost their cash equity and more due to the bursting of the housings bubble. It is not uncommon in some markets to find current values less than 50% of the value at the peak of the housing market only 3 or 4 years ago.. This is the main reason Europeans are buying vrbo vacation rentals as investment

Owning your own home is widely considered the fulfillment of the American Dream. Yet, according to The Joint Center for Housing Studies of Harvard University, “In any given year, some 34 million US households make their homes in rental housing. Like the general population, renters are highly versatile in demographic and income terms, as well as in their reasons for residing where they do.”

Americans who bought homes over the past 5 to 10 years might well have investigated their options a little more carefully before taking on more than prudence would have dictated. There are really three questions here instead of one. Buying may have many advantages over renting and still not be the right decision for you at this time I am not implying that all homeowners who are cladding a loss they will regret for years should have known better. They got caught in the perfect storm when the virtual collapse of the global financial system and the collapse of the overheated housing market occurred at the worst possible time for them.

With the benefit of hindsight many of those who have lost everything are blaming themselves for making bad decisions either about whether to buy, how much they could afford to pay, and the type of loan they signed. In some cases these homeowners listened to the wrong advisors or perhaps they refused to take the advice they were given. Even cautious buyers with fixed rate loans have been affected.

Quiblok

Reasons For Current Financial Housing Crisis

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