Good article on Real Estate Downturn and broader implications

[MrsSteel]

I think the issues with the real estate market are far too complex to pin all the blame on one group of people. However, I feel that the buck stops at the buyers. In second place, we have the lenders. A realtor can show you whatever property you want to see, but it's the lender who decides whether you get the money to buy it or not. I had lenders who briefly looked at our income & told us how much house we could afford, but that top number did not allow us to set aside additional funds for retirement, vacations, emergency repairs, etc. There's usually a huge difference between what a bank says you can afford and what you can honestly, realistically afford.

I think some people mistakenly confuse mortgage lenders with financial planners. There is a HUGE difference. You cannot take the lender's word for granted. You must do additional work and buy what you can really afford.

And by the way, I used to work for a bank. I know first-hand that there are some good, honest, caring mortgage lenders out there. Nevertheless, they don't know your entire financial plan and cannot properly advise you on how much you should spend on a house. They can only tell you how much the bank is willing to lend you.

[TuborgP]

Risk management and risk assessment went out the window the last few years in many cases. However if the local corner bank said they would lend you x amount and no more that was your first benchmark. If you then found a broker who could get you into a larger loan you should have wondered what the bank was telling you that the broker wasn't. Exotic mortgages helped people to buy a house not afford it.

Originally Posted by MrsSteel

I think the issues with the real estate market are far too complex to pin all the blame on one group of people. However, I feel that the buck stops at the buyers. In second place, we have the lenders. A realtor can show you whatever property you want to see, but it's the lender who decides whether you get the money to buy it or not. I had lenders who briefly looked at our income & told us how much house we could afford, but that top number did not allow us to set aside additional funds for retirement, vacations, emergency repairs, etc. There's usually a huge difference between what a bank says you can afford and what you can honestly, realistically afford.

I think some people mistakenly confuse mortgage lenders with financial planners. There is a HUGE difference. You cannot take the lender's word for granted. You must do additional work and buy what you can really afford.

And by the way, I used to work for a bank. I know first-hand that there are some good, honest, caring mortgage lenders out there. Nevertheless, they don't know your entire financial plan and cannot properly advise you on how much you should spend on a house. They can only tell you how much the bank is willing to lend you.

[Grizzmeister]

Please allow me to clarify my point. The old saying, “let the buyer beware” still holds true. Yes it is up to the individual making the purchase to be aware of what they’re getting themselves in to. I am not suggesting that real-estate agents are responsible for the current trouble in the housing market, but I’m also not denying the fact of predatory lending practices either.

Allow me to share some wisdom with those new to the process of buying a home. Get pre-approved for your loan before you meet with a real-estate agent. That way you can tell your agent EXACTLY how much home you can afford. By handling your loan separate from the home purchase itself you will also avoid any misgivings about conflict of interest.

I can further educate first time home buyers if there’s interest. Just ask and I’ll make my best attempt to answer the question. While I’m no expert I have been financially successful enough to retire at age 42.

Question of the day: Who is most responsible for the Housing Bubble?

Answer: Alan Greenspan. By holding the prime lending rate at emergency levels (approximately 1%) for an inordinate amount of time he allowed interest rates to drop so low that house prices exploded as a result. This happened because buyers were only concerned with the monthly payment as opposed to the actual price of the property.

I can elaborate on this much further if anyone is interested?

Fun fact: High gas prices actually helped fuel (pardon the pun) the housing run up by having a similar effect to raising the prime lending rate. Remember that inflation has historically been controlled two ways; by raising interest rates or slowing the pace of printing money. High gas prices, ironically, helped control inflation thus allowing the Fed to lag in raising the prime.

Who can save us from the financial crisis we face as a nation? Ben Bernanke- the man is an uber-genius.