Our research has revealed in 1940 the U.S. Census Bureau recorded the median price of a single family home in the U.S. was approximately $2,938. The median yearly income was $1,730. The Housing Cost to Income ratio (HCTI) was just over 2:1. Most borrowers during this period kept their mortgages for 30-years. During the 1970s borrowers began to exhibit major behavioral changes by ceasing to keep their mortgages until full term (the average being 10 years) while their HCTI ratios ballooned to over 5:1. As a consequence of this trend, lenders and MBS investors are resigned to investing 30 years worth of capital for only 10 years of accrued interest. Revenue streams derived from MBS are all too often dependent on borrowers that have an average
As we now know, the U.S. economy, the middle class, and its job growth was damaged by the overwhelming collapse of Wall Street, which was triggered by the downfall of the housing market and sub-prime loan defaults. One of the main things that need to be addressed in our economy today is the housing market and making sure that our banks and credit unions are not allowing people who do not have the necessary income to pay their mortgage disbursements. In an article entitled Thinking outside the Housing Bubble, the author John Vogel remarks how the economy is generally supported by the housing market. Vogel states:
In fact, “During the last ten years, the nation’s rate of homeownership has steadily fallen from nearly 70 percent down to just over 64 percent” (Romerdahl). Homeownership has been seemingly inseparable from the American Dream, yet statistics are now showing that less people are interested in owning a home. Until recently, government intervention has been raising the percentages of homeowners in the US, but percentages have been steadily falling even with lower interest rates and continued effort from the government. This evidences that not only is the American Dream changing, but it is not clearly defined in the first
The dot-com bubble in 2000 was the start to the, still current, historically low interest rates – all thanks to the Federal Reserve. Since interest rates were so low, many Americans decided that now was the time to get the “American Dream” and buy houses, since the values were going up and mortgage and insurance rates were so low. By serially refinancing, people were quite literally treating their homes as a money bank, and not thinking twice of the equity they were loosing in the process, because they thought that the value would only go up, while their mortgages would decrease, and were blinded by the so called “American Dream”.
FDR’s affordable housing initiative was responsible for the rapid expansion of home ownership throughout the United States (Allen and Barth, 2012). This was accomplished in part through the creation of The Federal National Mortgage Association, which provided affordable low down payment mortgages extended over a 30-year period of time. Over the past several decades the United States economic policy has been to encourage home ownership (Bluhm, Overbeck and Wagner, 2010).
These brokers have neither the credit skills nor the interest to conduct proper payment due of potential homebuyers. Their interest is only in selling the houses as fast as they can. The MBS instruments allowed all financial institutions to transfer the risks to other investors. The dissociation of ownership of assets from risks encouraged poor credit assessment and was fundamental increasing the risks.
During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.
“Growing income inequality in the United States stemming from unequal access to quality education led to political pressure for more housing credit. This pressure created a serious fault line that led to distorted lending in the financial sector.” (Rajan,2010, P.54)
Statistically, one out of seven families live in severe physical deficient housing. In fact, the housing and stock market revealed in July of 2009 that the Great Recession further widened the gap and income disparity between the average, hard-working Americans and the top 1% of wealthy Americans. Edward N. Wolff suggests that the average American produced a massive 36.1% drop in overall marketable assets while the top 1% of wealthy Americans only lost 11.1%. This income gap disparity ensures that ever-increasing need for affordable housing as the economic crisis worsens.
Home prices are increasing, but personal incomes are not keeping pace (Myers, Painter, Zissimopoulos, Lee, & Thunell, 2017). Faltering incomes and a shabby labor market that produces only low-paying jobs are key culprits to home ownership for the young (Myers & Simmons, 2017). Surveys among renters show that 65-72% would own rather than rent, if they were financially able (Fry & Brown, 2016). The problem is more extreme for the poor. Prior to 2008,
Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and
In conclusion, homeownership in the United States have decline over the past years even being the lowest it has ever been, but has had an improving and strong market beginning in 2012 after a 27% decline from the 2006 peak, and the increasing homeownership rate is a worthwhile policy to allow the United State economy to
During this time period, homeownership typically required a 20 percent down payment (Melicher & Norton, 2014, 168). Lending institutions were very careful about whom they lent money to, and credit standards were high (Melicher & Norton, 2014, 168). Melicher & Norton (2014) called this the “save now, spend later” philosophy, and it would change in the coming years (p. 168).
Establish Credibility: According to US News, the great American dream of owning a home appears poised for a comeback. Real estate company Trulia reports that in many parts of the country, rents are rising while housing prices are falling, making buying a home more affordable. Trulia found that in 98 out of 100 major metropolitan areas, including Detroit, Atlanta, and Cleveland, buying has become more affordable than renting.” I think the mortgage catastrophe of 2001 left prospective home buyers afraid of buying a house without being extremely certain that is the right decision.
An increase in loan packaging, marketing and incentives encouraged borrowers to undertake difficult mortgages so they believed that they would be able to refinance quickly at more favourable terms. People borrowed money to buy the house and then expected the price to rise and sold so that they could pay off the debt which owed to the bank and demanded a new loan to buy another house. However, once the interest rate began to rise and house’s price dropped in 2007, refinancing became more difficult and banks could not collect their mortgages.
In this report, the question “How much of the changes in the median selling price of homes in a city can be explained by the changes in median income of that city?” is answered. Home ownership is an important aspect of one’s life stages, and home prices are determined by demand and supply. The demand curve is affected by the one’s income, such that as one’s income increases, one is more willing to pay a higher price for the same quantity of goods (Baye & Prince, 2014). However, there are many other factors that might affect the demand curve, e.g. no. of children, in the household, the perceived quality of education in the school district, or the number of job positions (filled or open) around the city. According to Burda