Tucson Homes – Why are Prices Staying High
October 23, 2007
Post Tags: Tucson-AZ-Real-Estate , Tucson-Foreclosures , Tucson-Home-Prices , Tucson-Home-Values , tucson-homes
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This is the first in a series of 3 posts to discuss why Tucson Home Prices are staying so high with the high inventory.
Foreclosure Properties
Now if there is anywhere you would think prices would be dropping rapidly it is foreclosures. After all isn’t that what has happened historically. Well this isn’t your father’s real estate market. Things have changed today. These changes are one of the reasons you will not see huge price cuts even in most foreclosure properties.
Refinance to Foreclosure or Our Home is an ATM
One of the huge changes involved in financing a home in the past few years is refinancing a home.
There are a lot of people that over the past couple of years have used the equity in their home to pay for things like vacations, new cars, home improvements etc. The problem with using equity is it is an intangible value. If the value of the home declines so does the equity, but the amount of the loan does not decrease based on the devaluation of the equity or the property itself.
In an article in the Arizona Daily Star on Sunday Oct. 21 was this assessment of the change in the way we look at our homes.
“Houses as cash source
The American Dream is overdue for revision.
“There’s been a huge shift in the way people view their houses,” says John Karevoll of DataQuick Information Systems. “Your house now can basically be used as an ATM.”
A generation ago, families celebrated getting a mortgage and again when they retired the loan. A home meant security. Financial commitment promoted pride and neighborhood roots.
But Americans have become much more mobile, and looser lending has made it easier to buy a home and borrow against its value.
Now a home is not just a place to live. It is an investment — a way to make money and finance a lifestyle, says Robert Manning, an expert in consumer credit at the Rochester Institute of Technology.”
Zero Down Financing and Roll in the Closing Costs
It used to be in order to purchase a home you had to have a minimum of 5% down payment. It was more likely it would be as much as 20% or more to avoid the paying of Private Mortgage Insurance. The homeowner had some equity in the home. If they fell on hard times, or there was a divorce and the property had to be sold or even if it went into foreclosure the amount being foreclosed was only a portion of the actual value of the property. Ex. Home purchased for $100,000 with $20,000 down. They are in the home for 3 years and are in foreclosure the loan was $80,000 they have paid back a small portion of this. The bank wants to recover it’s money and could sell this home for $80,000 and pretty much break even.
Today there is a purchase price of $200,000 with a first loan for $160,000 and a second for $48,000 (they rolled their closing costs into the loan). The loan amount is for more than the value of the home at purchase. But they bought at the height of the market in early 2006 and the home isn’t worth the loan amount.
Here is another quote from the same article above.
“The lending industry encouraged that transformation, promoting not just subprime loans but mortgages requiring little or no documentation of income, no money down, and interest-only payments.
When easy borrowing combined with a run-up in prices, speculators joined the fray.
But rising interest rates and falling home prices put particular pressure on people who live in the homes they own.
When people who bought almost entirely with borrowed money see appreciated worth disappear, there’s little incentive to hold on. Few players, though, seemed to appreciate the chance they might get caught.
“Lenders never said no,” says Jay Butler, director of realty studies at Arizona State University. “Nobody expected this to continue, but they hoped it would just long enough to get out of it — and they were caught up in the whirlpool.”
There has been a fundamental change in how homes are viewed today. And it is time to rethink the American Dream of home ownership.
This is just one of the reasons Tucson Home Prices are staying high. It is a different day. What we saw in home equity loans and in zero down financing to purchase a home has no historical precedent. Borrowing more money than a home is even worth is a new phenomena in the American Real Estate and Mortgage industries.
The end result therefore, has no precedent and for now Tucson Home prices are staying higher than many have expected.
October 23rd, 2007 at 10:44 pm
Dave,
Maybe you will discuss this further in the next couple posts, but what do you mean by “rethink(ing) the American Dream of home ownership”? As the Daily Star said, and you posted, some buyers can still get loans. If I were to get a loan the old-fashioned way, by putting down 20% and getting a fixed rate 30 year loan, would my personal goal of home ownership be derailed by society’s sudden redefinition of what it means to own a home?
I don’t think you mean that someone who had intended to buy a house (like me) should now rethink doing that. More likely, rethinking the dream means changing how I should go about buying a house.
I’m still reading your blog everyday, and if you are going to touch on any of this, then I am anxiously awaiting the next post.
October 23rd, 2007 at 10:55 pm
Keith,
The rethinking of the American Dream mean to return to the roots of that dream as outlined in the first quote above.
This means instead of the current thinking “My home is an ATM machine” we return, or (rethink) to viewing it as home, security and eventually the burning of the mortgage.
Tomorrow I’ll be covering more on the high asking prices with a high inventory.
There is plenty of money to be loaned and as I was reading today the FHA loan is coming back strong with new revisions which will make it more attractive to buyers as well as sellers.
I do want to write on the headline in Sunday’s paper on Now Might be the Time to Buy a Home. I’ll do that as well before the week is out. But the American Dream of home ownership is very much alive and well and while the focus has been on the subprime market it is still a very small part of the mortgage and real estate industry. Most loans are the traditional loan with 20% or more down with a 30 year fixed rate.
Whether it is a good time to buy depends on each individual or family financial circumstances.