The last several days there have been an endless number of Wisconsin Public Radio shows focused on the current crisis in the housing market/financial market. Since this is on everyone's mind, lets take some time to talk about it.
First, we need to consider whether or not one should combine the ideas of housing crisis and financial crisis. Are these really the same? On the one hand, there is no problem with the local Eau Claire housing market. The supply of homes in all price ranges continues to be higher than previous years, but the sale of homes is also up 7.3% over the same time period from the previous year. The days on the market number is higher for sellers, but on the other hand buyers have opportunities to pick up a home for a reasonable price. In plain lingo, the housing market right now is a buyers marker, but is that really a problem?
However, home financing has created a real problem in our economy and in the housing market, not to mention in individual lives. The long and short of this problem is that money was loaned out that carried to much risk and when the surge in home values ceased, many of these loans could no longer be funded.
So, who to blame? Here's my top five:
1) Society - The concept that I have to have it now and it's OK to pay for it later made many people comfortable with risking what is essentially the largest purchase they'll make on a hope that they could keep up with the payments. Is buying a house like playing the stock market?
2) Federal and State Governments - Both saw the risk lenders were taking and though they warned of the dangers of such practice, there were no regulatory teeth to protect the consumer.
3) Lenders - Not all, but those who put consumers into ARMS when the interest rates were at all times lows, or gauranteed that refinancing when the ARM came due would be no problem, or who loaned sometimes 125% the value of the property. I was tought the 28% was the maximum home debt and 36% was the maximum total debt a person could have. Were lenders taking these greater risks speculating that housing prices would continue to rise quickly enough to cover their tails? Shame on them.
4) Realtors - Did we really take the time to educate our clients about the dangerous waters they were treading or were we too afraid to lose a sale if we didn't do what our clients told us too. Yes, I know we provide a service by doing what they ask, but we can see the writing on the wall too. Would it have hurt to said something?
5) Consumers - It's our money and our decision in the end. When we sign on the bottom line we better know for sure what we are getting in to. In the end for many of us, maybe this is great time to learn a good lesson about life and finance, write off this season of our life, and take a much more cautious approach in the future.
But then again, don't you wish that your Realtor, lender, government, and society had told you this in the first place?