An article in the Seattle Times, Low interest rates lure young renters to homeownership, provides some insight into how the home market can be rising while the rental market is falling. Low interest rates. It also does a good job of repeating all of the usual fallacies about home ownership:
“I’ve just been spending my money for the last 10 years, and it’d be nice to have my own place,”
“I see this as another form of investment.”
“Interest rates are so low, and if we keep traveling and buy a home in five years, who knows how high they’re going to be”
The housing bubble is created a financial system that builds more leverage on the existing base of equity and allows increasingly unqualified buyers to obtain a loan. According to the Seattle Times,
Since October, Wells Fargo has started three zero-down loan programs, said Lesley Schwartz of Wells Fargo Home Mortgage.
The public, on the other hand, believes that they are “investing” in a home. The home finance system is structure to allow the phony equity being created in home price inflation to be spent on more consumption:
More-flexible loan programs are driving down the age of first-time home buyers. Gen X-ers are putting 0 to 5 percent down on a home and using the rest of their would-be down payments to buy furniture or improve their homes.
For a great editorial commentary on this mess, see William Fleckenstein’s piece on The Street.com: Fannie and Freddie: Now Too Big to Regulate.
