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Personally, I think the real estate market has a lot to do with the economy. Like you said, a LOT of people are foreclosing because now principle has kicked in on their interest only home loans. I still blame the banks for some of this problem. Greed drove them to give anyone with a pulse a mortgage that was WAY out of their price range.
In 2004 I got approved for a $700,000 loan for a condo in LA. I was making 1/3 of what I make now and had my credit cards about maxed out. Now, I cant get approved for a $300,000 home and my credit is great... im just "self employed." I have friends that bought houses and condos that were way out of their price range. My friend right now is going through the same problem. He was looking for a condo in the $600k price range and the realtor connected him with a bank and got him an $800k loan. I remember him teling me how the interest only loan was cheaper than the fixed rate for $600k. His response was "In 5 years ill be making more money, so Ill be able to afford the principle payment then."
At the same time, I have friends that are looking to purchase a home or condo now but say "its a buyers market, prices will keep going down and loan rates will go down too." So it seems that either people are sitting on their money hoping for prices to drop so low they can afford something that they normally wouldnt be able to, or their homes that they got talked into buying by greedy banks and realtors they now have to foreclose on.
It just seems the rich are getting richer and the poor are getting poorer
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