There’s a surprising twist to the nation’s mortgage problems.
Now the good risk, or prime loan borrowers, are getting into trouble.
How did this happen?
They took out too many “[tag-tec]second-lien loans[/tag-tec]” such as home equity and those tantalizing home equity lines of credit.
But did they use those funds for investments as savvy real estate investors would do?
The money was basically squandered on fancy lifestyles where seven- year- olds get makeovers and the family mom van is a leased luxury SUV costing over $40,000.
And some very wrong real estate maneuvers.
In other words, larger numbers of these folks over-bought into markets that were over-priced.
They got in over their heads. In many cases they owed almost as much as the house was worth.
The term here is being “upside down in a [tag-cat]mortgage[/tag-cat]”.
They fell for the false belief that they’d better get in now while they could before prices really increased.
They thought it would last forever. Real estate doesn’t depreciate, right? Prices never go down.
Let me add some personal musings here.
I’ve lived long enough to see various markets. The young people haven’t. That’s one of the problems.
Some of us can remember the [tag-ice]Carter [/tag-ice]Administration when interest rates were going up alarmingly high and inflation was in the double digits.
One of my father’s employees had bought a new truck and owed more money on it than it was worth. He told my Dad he secretly wished he could abandon it on the side of a road somewhere
My Dad warned me never to get into a situation like that.
My aunt’s groceries were stolen at an upscale store as she went to get her car. (Back in those days you could leave your cart on the sidewalk, retrieve your car, and load up at the door. Besides, it was a nice neighborhood and it had never happened to her before). She caught a glimpse just as a Junior League type drove off in a late model station wagon- with her groceries in the back .
The church I attended in Brentwood, TN, which is a wealthy suburb of Nashville, took up a special contribution for families in need.
Only this time they were members of the congregation who were actually going hungry while they were still living in large attractive homes. They had lost their jobs and couldn’t sell out. Their cupboards were bare.
Think it couldn’t happen again?
All it takes is a few more economic problems and the spiral will start. Will people ever learn?
But here is what I think will happen now.
I don’t think the economy will take a nose dive. That’s unless some terrorist attack hits us harder than Sept 11th. Talk on the Internet is Houston could be a target because that’s where a lot of our oil is stored.
However, more than likely, the market will continue to correct itself on local levels. Real estate is a lot like water. It will seek its own level.
Some areas will undergo more of a painful transition than others. Vegas is an example of a more volatile market while Nashville remains steady.
The opportunities for investors will involve having a greater chance of being in the right place – at the right time. The numbers will be in our favor.
There will be more and more prime homeowners who will view their homes as white elephants trampling them down. Will they want out? Think about it.
Will we be ready for some tremendous buying opportunities that lie ahead?