Reply #20: Not really [View All]

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Salaries are no where near the level to justify these prices and demand is only high because so many people are locked out due to prices. Limits on expansion are more a result of the escalating prices rather than a cause. That is, the high land prices on undeveloped land deters developers rather than the lack of undeveloped or underdeveloped property.

Residential turnover rates do effect prices because every time a house sells, the owner wants to more than to break even and the real estate agencies, lenders and title companies all take their substantial cuts.

The biggest problem is unrestrained lending, not low mortgage rates. Probably 90% of people obtaining new mortgages today would never have qualified for such loans in the days before banking deregulation. Also lenders today have the ability to obtain almost unlimited funds from the US Treasury to back their loans (hence banks no longer have to offer attractive interest rates on savings in order to have the cash to back their loans). Human nature is such that if you can get the loan, you will buy the house, regardless of whether you can realy afford it. 25 years ago lenders rarely loaned a person an amount more than the equivalent of his annual salary before taxes and most people (except those who qualified for VA loans) could not avoid having to come up with the required 20% down payment. Banks were also more cautious about a person's credit history and job stability. Today bad credit and an unstable work history only tends to raise you loan fees and interest rates, but not lock you out.

As long as lenders can come up with ways of financing these outrageously priced properties there will always be buyers and thus nothing to slow the escalating prices. There is no real competition in the housing market so prices tend to rise as high as the market will bear. Without realistic lending restraints, prices will continue to rise.