[UC] The housing bubble?

[Krfapt]

Statements were made on this newsgroup that, because of increased property values in the neighborhood, nobody should use the excuse that they can't afford to make expensive (HD?) improvement to their homes or investment buildings. The reason -- anyone can now take out a home equity loan based on higher value.

I questioned the logic in this -- pointing out that it meant a greater debt burden and higher monthly obligations -- but the person who made the statements originally hasn't responded.

Today's (Monday, 7/8/02) Wall Street Journal's lead editorial addresses the question of whether there's a "housing bubble" (which, as it says, there's no way to know until it does or doesn't "burst"). However, the editorial does point out the following, which are relevant to taking money out of property in the form of equity loans or refinancing:
1) Mortgage payments are now "running as high as 42% of income -- way up from their normal range of 25% to 30%."
2) Housing payments are "up 45% since 1980."
3) The growth of mortgage debt has exceeded income growth over the past several years.
4) Credit standards are falling and lenders are using ploys such as long "interest-only" periods and increasingly high loan-to-value contracts.

Much of this loose credit isn't a result of confidence by people who lend money and know more about the risks than I certainly do. According to the Journal, it's because the "lenders who originate mortgage loans can spread their risk by selling loans to institutions ... who, in turn, pool them and sell them to investors." Further, the Journal says, "originators, who have the incentive to value houses at the maximum possible, know they are going to lay off the risk."

The Journal says they "aren't wearing [their] fright wigs yet," and admits that "the optimists [may be] right" in that the Federal Reserve Bank has been trying "to spur this housing boom via lower interest rates as a recession antidote." Also, University City may be somewhat "special" for lots of reasons (as witnessed by the fact that we have an apartment shortage while another piece in today's Journal reports that apartment vacancy rates are climbing in general across the US). Notwithstanding the possible long-term housing value boom, however, the comments about debt associated with housing are relevant. And, ultimately, the increased value of a building can be more a burden than a benefit (e.g., higher taxes) until you sell it. Which, for many people in our community is essentially "not in this lifetime." There are a lot of people who bought low, either have low or no mortgages, and plan to live where they are for the rest of their lives. Increasing monthly payments to cov! er arbitrary frills not only makes no sense to these folks, it can be a disaster.

Al Krigman

PS: maybe I should add a "signature" to all my posts of this type asking people to rate them as to:
a) "scaremongering" -- say, on a scale from 0 through 9 where 0 is "not at all" and 9 is "chicken-little class;"
b) "misinformation" -- also from 0 to 9 where 0 is "properly referenced and not subject to tricky misinterpretation" and 9 is "pulled out of a hat and probably taken out of context."
This way, the people who like to accuse me of one or both of the above will have a uniform and consistent way to do it.