Tuesday, July 19, 2005

How a $350k House Becomes a $600k House.

By now it’s quite obvious that easy money has fueled the increase in house prices for at least the last two years. The remaining housing bulls are not making the case very convincingly that demographics and a favorable supply/demand dynamics are the reason for the huge increase in house prices. It seems to me that the mortgage originators are quickly running out of creative financing vehicles, such as interest only loans and negative amortization mortgages, and that it is only a matter of months before prices at the Shore flatten and then head south.


“Some experts say these non-traditional loans are artificially extending the housing bubble. The math is simple — consumers who can make a $2,000-a-month mortgage payment can afford a $350,000 loan using a traditional mortgage. With an interest-only loan, their buying power jumps to over $430,000. With a negative-amortization loan, that payment could get an eager couple into a $600,000 home. Consumers who want to buy a home with a traditional mortgage are easily outbid by those with exotic loans, pushing prices higher.”



Post a Comment

<< Home