Home Values and Reality
Home
values are up. There is no disputing that. Better questions are:
Who is buying a new home?
New
homes are being built in and around major metropolitan areas. Those homes have
been given the nickname “McMansions” due to their similar look and expanse.
Generally speaking, families that make more money are the only ones that can
afford these remarkably unaffordable homes. According to most loan calculators,
a family that earns $87,000 per year, with $500 per month in credit card and
auto payments, can afford a house worth no more than $250,000, with a 30-year
mortgage and a $15,000 down payment. Taking a look at newspaper ads in and
around the New York City area, there are NO NEW HOMES in that $250,000
price range within an hour’s commute to New York City.
Who is refinancing or selling their home?
It’s nice to believe that a homeowner sells a home to upgrade. However, the people selling their home today might not be in that category. As evidenced by the over-abundance of refinance ads in periodicals, on radio and on television, we see that more people tend to refinance their mortgage in order to pay their bills and get rid of exorbitant credit card debt. On the other hand, many people find it impossible to catch up with their bills, and are simply forced to take advantage of their home’s value. They sell, then move to a lesser value home, or are forced into a rental property.
What is the end result for the average, middle-class homeowner?
A home to the average American is no longer just a domicile. It has become an insurance policy, something to refinance when you need cash. It is something to sell in times of dire need. It is, for many, positive equity in a sea of debt.
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