Friday, February 13, 2009

Once Upon A Time...

... someone decided that everyone deserved a shot at owning their own home. Prices were fairly decent but many still could not get a mortgage approval. So, someone decided to make a few changes. Instead of having to work for a year before applying, you could apply after holding a job for only 3 months. Instead of putting 5 or 10% down, you could put Zero down. The interest rates were also lowered. Wow What A Deal!

Pretty soon, people from all earning levels were applying for and qualifying for mortgages. But not everyone in the lower class could afford the monthly payments on a 30 year mortgage, so someone decided to offer 40 and 50 year mortgages. BINGO! That'll do it!

Here they come, millions of families applying for mortgages and getting approved. Oh Oh - there's a problem - there are at least two people putting offers on every single home that is up for sale. What do we do?

I know! Raise the prices - that way everyone wins! Someone gets a home, the highest bid wins, and the seller and estate agent get more bang for their buck. Everyone is happy.

But wait, more and more people are qualifying for mortgages and there is still a shortage of homes. Build some more, raise the prices again, make sure you get as much money in the sale as you can.

Oh what a surprise, homes are now double the price they were only 5 years ago. Imagine that! Now less people can afford a home again, and the little perks and incentives are starting to wear off because people cannot make their payments after all. They were approved but after paying for hiked utilities, property tax, gasoline, and groceries, not enough is left for the mortgage! What should we do now???

Meanwhile, people were excited to buy a new car and found themselves with higher limits on their credit cards - let's put a mortgage payment or car payment on those, that will save some cash!

Oh crap, my card is maxed, my mortgage is due, my cupboards are bare - what now?

I know, my neighbour who has been renting through all of this mess can pay a little extra of his hard-earned cash! He won't mind because he doesn't want to see me lose my home, even though he doesn't own his own. He can work longer hours or maybe his wife can take up a second job too. They won't mind of course, it's all about helping each other.

There is another problem - house prices are dropping. Some who were struggling thought that selling would be a good plan, until they saw that they had lost $50,000 on their home value in only a year. If they sell, they lose big time. They are stuck. In the meantime, 40 and 50 year mortgages have been stopped partly because people could not pay back their mortgages and banks were out the cash... The interest rates climbed, and less people are able to afford a home again. Now there are two houses up for sale for every one buyer . Prices drop even more, some valued at $100,000 less than what they were purchased for a couple of years ago. People are stuck paying a $2000 mortgage on a home that would only grab a $1300 a month payment today... Crisis. New home building slows to a crawl in an attempt to stop the house prices from dropping even more.

But it's okay, remember my neighbour? He will help bail me out! He's a pretty nice guy - he will help you too!

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