Back in April of this year, Catherine Reagor of the Arizona Republic said:
Homeowners with subprime loans are struggling the most.
Yesterday however, Reagor stated:
The Valley’s growing foreclosure problem is hitting the upper and middle class the hardest.
Metro Phoenix homes in neighborhoods where prices range from $400,000 to $450,000 now have the highest foreclosure rate.
Almost 90 out of every 10,000 homes in that price range are in foreclosure, which is more than double the rate for homes costing below $200,000, according to an Arizona Republic analysis of data from the Information Market. Homes in areas in the $200,000-to-$250,000 range have the second-highest foreclosure rate, with 63 out of every 10,000 homes in foreclosure.
All segments of the Valley’s housing market have been hurt by falling home prices and rising interest rates and payments on adjustable-rate and subprime mortgages. But the problems are worse for homes in the $400,000-to-$450,000 range because many speculators bought in those neighborhoods, some families moved up beyond their means, and the recent credit crunch has made getting mortgages for more than $400,000 tougher.
It wasn’t just the subprime borrowers who bought homes they couldn’t afford.
At the height of the market, there were a lot of agents who advised people to "Buy all the house you can." Now a lot of people are discovering that "all they could" was "more than they should." It turns out that lending people more money than they could afford to pay back was a really bad idea- even if those people had a good income and a great credit rating.
I don’t think “buy all the house you can” is inherently poor reasoning. The housing boom just perverted it by dropping the word “afford” from the end. Families grow and salaries grow, and if you’re buying a house to live in, it may as well be one you can live in for the long term.
NVAttorney-
I have a couple of kids in college, so I can tell you that families also shrink. You can end up with whopping utilities, a big house to clean and asking yourself, “What was I thinking?”
I sold my 6 bedroom 5000 sq. ft. home to a pair of empty nesters- who are currently building another home. I’m guessing they decided the house didn’t suit their needs.
Rampant appreciation is gone. There’s no reason to stretch the budget to make a huge payment any more.
twist, I know the feeling.. When you realize you start to have several empty rooms at any given time (bedrooms) and that it costs more than 400 bucks a month just to keep the a/c at a decent level, you start get that “oh wow, I’m not going to finish this” eyes-bigger-than-stomach feeling.
It’s hard to do, but I always liked putting money aside for purchases to see if I needed that money later. If so, it’s right there.. if not, it’s truly extra cash. For the same reason, renting a similar house you’re thinking of buying can be a great eye-opener. You may end up paying more down the road as prices rise or fall, but when you are completely unable to sell a house you bought inexperienced, it becomes entirely worth that “wasted” money..
My father bought near the height and while he’s way out in on the outskirts of town out west, at least at 130k he can suffer a 25% drop in “worth” better than the guy that bought in an area like Gilbert for 400k. Many folks could find one way to come up with that 25k or so if absolutely needed. The 100k for the pricier property would be much harder to pull together. I’m definitely seeing that effect in my gilbert neighborhood.
MG-
I’m seeing it too. A lot of people in Gilbert bought at the top, and many investors bought larger homes than they might have, as the smaller ones were being snapped up so quickly. The Gilbert market is starting to crack, and I expect things to be looking a lot worse by next summer.
twist-
Or better.. for me at least