Contributing Factors to a Mortgage Crisis

As I sit in the sidelines of the Bay Area Real Estate market, beleaguered, exhausted and frustrated by the fact that even when the market turns to shit, Arin and I still can’t seem to afford a house, I watch with great interest (no pun intended) to the news about the nation’s growing mortgage crisis.
What strikes me though about the coverage is how singularly focused it is upon the financial institutions behind the crisis. Little attention is paid to other possible contributing factors – such as an environment in which buyers are rushed to buy, in which buyers are compelled to make the most significant and largest purchasing decision of their entire life in less time than I typically spend deliberating about whether I will buy the marble bread or the banana nut bread at Peet’s every morning.
Of course I can’t speak for the rest of the country, but I can speak with some degree of authority for the Bay Area where I live, and where we have been engaged in the process of looking for a house for over three years now.

“There were 258 foreclosures in the Bay Area in the second quarter of 2006. That number spiked to 2,206 in the second quarter of 2007. That’s a 755 percent jump, according to DataQuick.”

The Bay Area market and the [rate of foreclosures](http://www.nbc11.com/news/13757139/detail.html) it has seen could be an anomaly, or it could be an indicator of a larger problem.
The scariest thing about the process of buying a house here is not the financing — at least for Arin and I. What we have the hardest time with is the amount of time we are given to make our decision to buy. I can’t tell you how many times Arin and I had this conversation with an agent on a Sunday afternoon open house…
**Byrne (to Arin)**: “I think I could like this place.”
**Arin**: “It pushes our budget a little bit, and it is far from perfect. But you are right, it is nice.”
**Byrne** (to the Realtor): “Cute house. So, when are you hearing offers?”
**Realtor**: The day after tomorrow at 1pm.
For every house we have looked at, Arin and I would be required to take out the largest loan of our lives. We stare at spreadsheets for hours trying to project how on earth we will make it work, and the resulting pressure we feel to reduce our monthly mortgage payment is immense. Plus, the pressure we feel to raise our offer price is even greater — because after three years, you just get tired of getting beaten out by higher offers. You just want your damn house already.
Finally, combine those pressures with the fact that Arin and I have less then 48 hours on average to put together an offer, and you see how so many people in the Bay Area found themselves in a load they could not sustain.
Now this is the situation that Arin and I face every single time we walk into a house we like. **Every. Single. Time.**
So if anyone wants to try to rationalize how the Bay Area could be hit so hard by this crisis, don’t just look at the banks, look at a market climate that forces buyers into making really, really bad decisions.

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8 Comments on “Contributing Factors to a Mortgage Crisis”

  1. Vlad says:

    Sorry for offtopic. Where can I download this template for Movable Type?

  2. salguod says:

    West coast, heck both coasts, housing markets are whacked from where I sit in ho-hum Ohio. My fairly modest 1,750 sq. ft. 4 bedroom house with 2 car garage and 1/8 acre lot, I’m told by former Californians, is pushing a cool 3/4 of a million bucks out west. At minimum $500K.
    Wow.
    We bought the house for $140K 7 years ago, it’s been valued as high as $180K and is likely down to about $170K now.
    A half a mil will buy you a huge home here in central Ohio. Huge.
    The aforementioned friends moved here from southern Cali for the very reason that they knew they’d never own their own home there. Never be able to afford it. They’ve been here around 3 years and been in their own place for almost two.
    I’m pretty surprised that after all the housing troubles, and the concentration of the down turn on the coasts, that the market is still so tight that homes are gone in 48 hours. Crazy.
    Homes here are much more affordable and down far less and yet they linger on the market for months.

  3. demonsurfer says:

    Take a look at this graph – perhaps your waiting is a blessing in disguise (note that values are relative values, not actual values) – what goes up must come down? With all those foreclosures and more to come, supply will quickly outpace demand, and that invisible hand is going to knock those prices back down to where they should be, imho. We have been considering the same here (buying), but looking at that, I’m waiting until I finish my studies (I’m an adult student doing a career change, my partner is working) and those relative prices come down. May take a bit longer here in NYC though, considering demand has outpaced supply for decades here.

  4. Byrne says:

    @demon – the irony of course is that as the housing market plummets, so does the value of my current home. Meaning my buying power is not improving.
    I am starting to understand in a much more profound way why and how a housing market crash feeds in on itself. In actuality I feel that people who don’t own a home are actually in better shape then those who do, because if you have a bunch of liquid capital, which I don’t, then as housing prices drop, what you can afford stays the same. On the other hand, as the value of my home goes down, so does what I can afford.
    It’s maddening!

  5. Byrne says:

    You can get this template set as a part of your Movable Type 4.1 purchase. For personal use, this template set, plus Custom Fields is only $99.

  6. There are two factors that contribute to the craziness:
    1. A belief that prices will continue to rise.
    2. Banks that offer “creative” ways to lend you the money even if you can’t afford the house.
    #1 becomes a self-fulfilling prophecy until #2 gets so far out of hand that the banks (or the buyers of the mortgages on the secondary market) get cold feet. Then the process works in reverse, except that I doubt prices in California will ever come down to the point that people in the rest of the country think is sane.
    The tragedy is that someone who just wants a place to live is forced to participate in this game.

  7. Wow this is how some see it. This is a great article.

  8. I notice a great development inside your publishing, I’d adore to get in touch. Maintain the excellent perform! Your writing is very motivational for somebody who is new at all to this type of stuff.


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