mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Thursday, June 16, 2005

An interest-ing statistic....

As I've mentioned on this blog before, I want to buy a house. I was hoping to do it this year, but I've decided to table it to next year. This is partly for personal reasons - I want to focus on a few other things, like grad classes and my diet - and partly because I'm hoping that prices will drop a little bit and that my savings will increase.

The Baltimore Sun this Sunday had an interesting editorial on interest-only mortgages in Maryland. They now make up 24% of new mortgages in Maryland.

That's scary. It shows how high home prices are. But the fact that banks are willing to give them, and that people are willing to take them, is hurting people like me who are unwilling to use them - because now you have lots more people in the housing market who probably shouldn't be, and they are bidding up the price of houses.

To me, a reverse mortgage sort of defeates the purpose of buying a house, since you aren't building up any equity. It's sort of like leasing the house with an option to buy. It bets that housing prices will continue to increase - and if they don't, the people who are using them will have paid a bunch of money for a house that they can't refinace or flip for a profit - or pay for at all.

What I fear will happen is that soon after I buy my house, the housing prices will fall and I'll get burned. But if I don't buy and the prices keep going up, I'm also screwed.

I am of the mind, however, that housing prices won't decrease all that much. There are a lot of people like me who are waiting out buying houses, and they will move into the market once prices start falling, which will drive prices back up. And in places like the Baltimore Metro area, there is a land gap - there is only so many places you can put houses that are close to where people work. Since most people don't want an hour commute, they will want to live somewhere near the Beltway - and prices will continue to be high because supply can't really increase too much because there isn't a lot of room for new construction.

Also, I've noticed that almost all of the new construction of late is aimed at the higher end of the market - $300,000+ houses. That means that the supply of houses for first-time or low-income buyers is not increasing. That's bad for me now that I'm a buyer, but it may be good when it comes time for me to sell.

btw, David Bernstein at Volokh had a good personal perspective on this issue almost a year ago - which is one of the first places I heard of interest-only mortgages.


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