The Second Housing Bubble (T.S.Khanna), August 13,2013

Foundation for Better Government

(www.bettergovt.blogspot.com)

August 13, 2013.

The Second Housing Bubble

By T.S.Khanna, August 13, 2013.

Before the home prices crashed in 2008, there were 28 million sub-prime/risky loans nationwide.  Such loans and price rise illusion placed families in homes they could not afford.  When they abandoned their homes, they suffered enormous financial and psychological damage.  The banks suffered heavy losses.  On the government sponsored loans, taxpayers lost approximately $ 200 billion.

Those who never missed a mortgage payment also suffered a loss in their home values.  Now after five years, only 45% of the lost value has been recovered nationwide.

Overly enthusiastic real estate industry, along with the government policy of low interest rate to boost the economy quickly, has put the housing market on the same path again in the S.F. Bay Area.  It is getting bubbly.

In this buyer-beware market, the buyer must thoroughly investigate at least 18-month comps.  Note that some unfavorable comps are concealed from public record against the buyer’s interest.

The current mortgage rate seems artificially low and is likely to jump to a more realistic 7%, with a negative impact on home prices.  Rushing to beat the rising interest rate could result in suffering a loss in the market value of the purchased home.

Suggested criteria for selecting the safe price range is (a) 25% down payment, (b) mortgage payment not exceeding 20% of the monthly income, and, (c) reserve funds for six months payments, should the income stop.

Government may also amend its policy to protect buyers and serve the public interest better.