I've just finished doing the research and substantive edit of a book designed to help newlyweds through the process of buying a home. The author, a fan of sub-prime mortgages in SOME cases, does ask readers to do some major work before jumping in: make a budget and then stick to it for a few months, instead of just assuming that you will; don't have a mortgage bigger than what you are already paying in rent (providing you're meeting your rent payments without a problem); remember that happiness is not dependent on glass-tiled bathrooms with soaker tubs, etc. Basically, reminding people to stay sane.Sanity has been hard to come by in real estate for the last few years. The early adapters to bubble housing prices and the rise of HGTV made a fortune. Soon, everyone felt that they should be in on it. If you weren't buying, upgrading, or flipping you were an idiot, doomed to a life as a wage slave. Turn on any one of half a dozen TV channels and you could watch 22 year old waiters and 40 something housewives leverage the finances to buy a wreck and then, a few setbacks and many visits to Home Depot later, reveal the newly gleaming home and their expected profit margin--usually about as much as most people make in a year or two.
I like buying lottery tickets. I probably average a $150 worth of them every year, usually when the jackpots have reached a point where I can give enough away to friends and family and still never have to work. My $3 a week gives me at least as much entertainment value as 75% of the movies I go to. So I consider them a good value, even though I only win about $50 a year. I've heard lottery tickets described as a sin tax or a stupidity tax; I prefer to think of them as a dream tax on avarice.
Which is basically what happened with the sub-prime mortgage market. People listened to their neighbours and co-workers, they watched the reno and flip shows, and almost every time they went online a pop-up assured them "No credit, no problem--you can still qualify for a mortgage!" They started to dream of surplus, of quitting the joe job and sitting down to acclaim for their financial acuity and good design sense. Banks and mortgage brokers fiddled with figures to enable clients to go into dubious debt. Clients abandoned all common sense and signed on the dotted line.
And now that dotted line has come due. Housing prices in one overly inflated bubble market, Los Angeles, have gone down by an average of 25% in the last year. That means a house that was worth $400,000 a year ago (probably financed with a mortgage loan of $412,000) is now only worth 300 grand--so, as your special 0% monthly payment of $1,144 switches to a mortgage rate of 5.5% with an unpayable $2,340 payment, you can't even sell it and come out even. Which is why subprime mortgages may temporarily overtake that old standby, medical bills, as the chief instigator of personal bankruptcy over the next few years.
Good luck to the all avaricious dreamers. They'll need it.



