September 29, 2008
-- by Dave Johnson
In my morning paper,
Q How will the plan affect the housing market?This is just wrong. If you qualify for a mortgage you can get a mortgage. If you do not qualify you can't and this bailout makes no difference.
A If it works as intended (a caveat with all these answers) the $700 billion should help level off home prices. The huge infusion of money into the financial sector, designed to buy up the most toxic mortgage-related assets held by banks and others, should loosen up the mortgage market, making it easier for potential home buyers to secure a loan and get into the market.
That, in turn, should stabilize prices, as more buyers make bids for homes.
The problem happened because people who did not qualify were getting mortgages. They were offered low "teaser" or "qualifying" rates. This enabled people to pay much more for houses than they should have and could afford. So in the bubble frenzy this allowed houses to go way, way up in price. Later the mortgages "adjusted" to the real rate, dramatically increasing the monthly payments.
Now the old rules are back, requiring people to prove they could afford to make the payments. Those rules are not being changed by this bailout bill. So people will not be able to "bid the price up" way beyond what a house ought to sell for.
Prices are not going back up. Give that idea up.
Instead, ask yourself why this bailout is being sold to you with lies?
Posted by Dave Johnson at September 29, 2008 9:02 AM
Post a comment
Thanks for signing in, . Now you can comment. (sign out)(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)