Economic Thoughts – Mortgages
Had a couple of big economic thoughts the other day that really are kind of obvious if you give it much thought – the first has to do with the in ability to get home loans and how that this really of the root causes of the slow and failing to recover economy. I am moving ahead with sharing though, as no major media outlet that I have seen has covered this directly. Several have come close and certainly lave it has the obvious conclusion. However, my faith in the powers that be seeing something so obvious is a little less a percentage I would rather bet, so here I go with the comments I have concerning the in-ability to get a home loan and how that is holding down our economy.
After all, interest rates are at one of the all time lows since we have had such things. Historically we recognize that when the Fed (and other forces) act to lower interest rates, especially those rates that traditionally have an impact on the typical home mortgage rate, several things happen. The most obvious of those is that more houses are usually purchased. With more homes being purchases there is a secondary impact and that is the purchasing of those goods and services that accompany the equipping a house after and while taking up residence – which could range from utilities and services, moving expenses, purchase of big items like appliances, or the smaller home decorations.
Of course with interest rates so low, there is also usually a big market to refinance and free up some amount of money from the typical homeowners monthly budget. Secondary to this of course is the second mortgage which can give a big bunch of cash to a home owner based on equity. In both cases, it is additional, potentially discretionary funds that can be spent on those things that other wise could not be afforded.
None of this is happening though as a general rule. The question is of course why not, but that is an easy one to see. The credit market, despite a glut of capital to move with making loans has become extremely tight. Five years ago, if you had a pulse and could make your mark (about a thousand times) you could qualify for some kind of home mortgage. If your credit was on the higher end you could get a house with no money down and near the low-end of the interest rates. If you had a little equity, with the anticipated appreciation of the value of your home you were good for a second financing easy enough.
Today, as I am hearing it at least, have a slight bad mark on your credit and you pretty much can NOT qualify for getting into house. The one exception is if you have about 25-30% to put down against, then you might qualify. Even those with credit of the highest levels have been having problems qualify due to all the extra regulations that involved, to the point that one person with the cast to buy outright did that after being denied a mortgage. We do not have to far to see why second mortgages are pretty much done for the time being – with home values having sunk for the most part across the county most folks are upside on the loans already or afraid to find out that is the case and so do not apply. Those that are not upside down are generally close enough that getting equity out is not worth it. Refinancing options are limited because of the same – houses being less now then what the original loan was written for makes it hard to move forward on such things.
Now mind you, I am not suggesting or advocating that we return to the free money days of a few years back but… If someone does not do something make the money that the Feds have tried to make available to get the economy moving actually available it is going to be a very long slow period before the housing market even starts to think about moving in a positive direction again. Keep in mind all the secondary places the house market being off impacts and suddenly it becomes clear some action needs to occur. An obvious one to me is to completely cut the interest rate the Fed pays to financial institutions with deposits, so that without that save haven that earns money they will be a little bit more compelled to actually try to loan it out.
** – Image was found all over the web, who knows who owns it?
