Subprime Loans and Cost of Housing (Fairfax: mortgages, house prices, to buy)

[05c6400]

Question - Is there a relationship between subprime loans and the exponential increase in the cost of housing?

[Yankeesfan]

Housing prices were escalating primarily because the economy was good and interest rates had dropped so low that demand was greater than supply. Subprime loans enabled people who couldn't really afford houses to buy them anyhow which added to the demand. So while they didn't cause the initial rise, they added to it.

[05c6400]

Originally Posted by Yankeesfan

Housing prices were escalating primarily because the economy was good and interest rates had dropped so low that demand was greater than supply. Subprime loans enabled people who couldn't really afford houses to buy them anyhow which added to the demand. So while they didn't cause the initial rise, they added to it.

Since they did add to the cost of housing has that delta decreased and brought housing prices inline with what most people can afford?

[Yankeesfan]

Well, the irresponsibility of those who took out mortgages they couldn't afford and are now in default has triggered the collapse of the economy ... house prices have dropped substantially, although they are still expensive around here compared to the rest of the country. But with the current downturn in the economy, people who previously could have afforded houses at these prices now can't because of job and investment losses, or are unwilling to take the risk until things improve. It's been a cascading domino effect.

[athousandlogins]

and brought housing prices inline with what most people can afford?

Not really, if you're talking about NoVa exclusively and specifically. I mean, a $500K house that lost a whopping 20% of its value in this downturn is still $400K and still out of range for "most people."

[05c6400]

Would it be fair to say since subprime loans helped over inflate prices, that most sellers are still expecting their property to sell with the over inflated price.

I know salaries are relatively good in NOVA/DC area, but again not everyone is making a $200K salary. How many families are dual income families? I am sure there are a lot and a lot are not near the $200K salary. Average median income for Fairfax County was $105,241.00 in 2007. At that salary you are only looking at a $390K to $400K house.