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Housing In The New Millennium: A Home Without Equity Is Just A Rental With Debt

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1162456

Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt

Joshua Rosner
Graham Fisher & Co.

June 29, 2001

Abstract:
This report assesses the prospects of the U.S. housing/mortgage sector over the next several years. Based on our analysis, we believe there are elements in place for the housing sector to continue to experience growth well above GDP. However, we believe there are risks that can materially distort the growth prospects of the sector. Specifically, it appears that a large portion of the housing sector's growth in the 1990's came from the easing of the credit underwriting process. Such easing includes:

* The drastic reduction of minimum down payment levels from 20% to 0%
* A focused effort to target the "low income" borrower
* The reduction in private mortgage insurance requirements on high loan to value mortgages
* The increasing use of software to streamline the origination process and modify/recast delinquent loans in order to keep them classified as "current"
* Changes in the appraisal process which has led to widespread overappraisal/over-valuation problems

If these trends remain in place, it is likely that the home purchase boom of the past decade will continue unabated. Despite the increasingly more difficult economic environment, it may be possible for lenders to further ease credit standards and more fully exploit less penetrated markets. Recently targeted populations that have historically been denied homeownership opportunities have offered the mortgage industry novel hurdles to overcome. Industry participants in combination with eased regulatory standards and the support of the GSEs (Government Sponsored Enterprises) have overcome many of them.

If there is an economic disruption that causes a marked rise in unemployment, the negative impact on the housing market could be quite large. These impacts come in several forms. They include a reduction in the demand for homeownership, a decline in real estate prices and increased foreclosure expenses.

These impacts would be exacerbated by the increasing debt burden of the U.S. consumer and the reduction of home equity available in the home. Although we have yet to see any materially negative consequences of the relaxation of credit standards, we believe the risk of credit relaxation and leverage can't be ignored. Importantly, a relatively new method of loan forgiveness can temporarily alter the perception of credit health in the housing sector. In an effort to keep homeowners in the home and reduce foreclosure expenses, holders of mortgage assets are currently recasting or modifying troubled loans. Such policy initiatives may for a time distort the relevancy of delinquency and foreclosure statistics. However, a protracted housing slowdown could eventually cause modifications to become uneconomic and, thus, credit quality statistics would likely become relevant once again. The virtuous circle of increasing homeownership due to greater leverage has the potential to become a vicious cycle of lower home prices due to an accelerating rate of foreclosures.

Presented: 2002 Mid-Year Meeting American Real Estate and Urban Economics Association National Association of Home Builders Washington, DC May 28-29, 2002.

The above apparently caused the following to be pulled.

https://confoundedinterest.files.wordpress.com/2013/01/nhsdream2.pdf

The National Homeownership Strategy:
Partners in the American Dream
U.S.
Department of Housing and Urban Development
MAY 1995
The White House Washington May 2, 1995
Message from the President
Our nation's greatest promise has always been the chance to build a better life. For millions of America's working families throughout our history, owning a home has come to symbolize the realization of the American Dream. Yet sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate
declined for the first time in forty - six years. Our Administration is determined to reverse this trend, and we are committed to ensuring that working families can once again discover the joys of owning a home. This past year, I directed HUD Secretary Henry G. Cisneros to work with leaders in the housing industry, with nonprofit organizations, and with leaders at every level of government to develop a plan to boost homeownership in America to an all - time high by the end of this century.

The National Homeownership Strategy: Partners in the American Dream outlines a substantive, detailed plan to reach this goal. This report identifies specific actions that the federal government, its partners in state and local government, the private, nonprofit community, and private industry will take to lower barriers that prevent American families from becoming homeowners. Working together, we can add as many as eight million new families to America's homeownership rolls by the year 2000.

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Shame it's so different here, for all the wrong reasons.

Actually I don't think it's quite true there either. Not in all states, at least. For the majority who keep up whatever form of payments they commit to, there is the rather fundamental question of what level of freedom and security you enjoy.

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If everyone could purchase and buy within say 20 to 25 years......what with population increasing and low percentage building......how would banks make money?...fully paid for property would pass from father to son, son to daughter....no additional debt required.......only taxes.......no demand for debt, what would keep the banks in business?...they can't afford to pay interest on credit without growing amounts Debt......IMO there is not a high demand for debt.....what next?

Edited by winkie

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