I’ve been concerned about the U.S. housing bubble for a couple of years now. The Big Picture blog has a post that explains the U.S. housing situation quite thoroughly yet in a way that an economic layman like me can understand. Here’s a simple to understand bullet list of some aspects of the current situation:
- 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000;
- 43% of first-time home buyers in 2005 put no money down;
- 15.2% of 2005 buyers owe at least 10% more than their home is worth (negative equity);
- 10% of all home owners with mortgages have no equity in their homes (zero equity);
- $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.
When we decided to ‘upgrade’ houses in 2003, we decided how much we could comfortably spend each month on mortgage, insurance and taxes, correlated that to a home price range, and got a fixed rate 30 mortgage at a very good rate (6%)for a house in that range (and not at the top end, like I’d expected!).
The house we bought is relatively well built, in an area that’s still experiencing big growth (won’t start to suffer suburban blight soon), is one of the less expensive homes in the neighborhood, is right around the median home price for Austin, and had a very good price per square foot for Austin. We also put some of our equity from the last home as downpayment on this one (though not much). So, barring an unforeseen family economic crisis, I think we made a very conservative and sensible purchase.