Price Boom Making For Bad Decisions
The emotions swirling around the housing market are strong and result in distorted decision making. Take this AZCentral piece. "As prices continue to climb there, the Ahillens say they are forced to look at smaller homes and act more quickly. 'You find if you don't act now, you're going to get priced out of the market.'The Ahillens said they want to keep the home they now own in Tempe as an investment for their 3 1/2-month-old son's college education, which means they need to finance 100 percent of the purchase price in Gilbert."
"Joi Belinda said an adjustable-rate mortgage, with its lower interest rate initially, could help her get into a house. The 35-year-old, who is renting a townhouse, says lowering interest by as little as half a point would make a big difference. 'That half a point is money I can save.' Still, she said that although buying a house is 'definitely a hot thing to do, I feel kind of nervous about the market.'"
It's not just buyers that have lost their heads. "Erik Lutz, president of Great Southwest Mortgage, said that six years ago, few of his company's customers took interest-only mortgages because they would have had to buy points or pay down the interest rate. That isn't the case anymore. About 70 percent of the mortgages his company did then were fixed rate. That figure has dropped to about 30 percent today."
Listen to the same guy, "People spend 45 to 50 percent of their earnings on housing. This is very dangerous, because it doesn't provide a financial cushion. Lutz agrees. 'People are counting on housing appreciation to be their savings," Lutz said. "The homes need to appreciate, otherwise there is no savings.'"
"Not only are homeowners counting on appreciation, Lutz said in many cases people are taking the money they would have been forced to save and using it to buy a bigger house."