Thinking of buying a new home, but uncomfortable with the idea of having equity? [After all, nearly 20% of Americans are underwater- why should you be any different?] The city of Avondale, AZ has a program for you!
The Avondale City Council Monday night approved a contract providing homebuyer services for prospective homebuyers, according to a news release.
The $1.7 million contract awarded to the non-profit Housing Our Communities Inc. will provide funding to help low to moderate middle income families buy foreclosed homes.
The funding will also provide qualified homebuyers with homebuyer education, down payments and closing costs.
The program contract is part of funds provided to Avondale from the Federal Neighborhood Stabilization Program/Housing and Economic Recovery Act of 2008, according to the news release.
Under this program, the government is willing to spend a lot of taxpayer money to turn you into a homeowner:
The program provides up to $30,000 for down payments, up to $5,000 for closing costs and up to $45,000 for repair.
Are you worried that a program like this that claims to "stabilize neighborhoods" might leave you above water? Not to worry- this program only requires buyers to put down a 1% downpayment!
"How does that help", you ask? First, let’s look at the most recent graph of Phoenix median home price appreciation: [Data from ASU's Realty Studies monthly reports]
The median price of a home has dropped over 40% in the past year and is 50% off of it’s peak. Clearly with that kind of depreciation, your 1% should disappear quickly. Just how quickly? Let me show you what’s been happening to the median price month-to-month since January 2008:
Just look how quickly home prices have been dropping. With these declines you should be able to get rid of that pesky equity in two weeks- or less!
But wait- that’s not all. As an added bonus, you might be able to get rid of the house as well. A 2005 study on mortgage defaults in Ohio stated:
The current loan to value ratio (LTV) was the most important determinant of mortgage defaults.
If trends remain constant, in less than two weeks you should have MORE L than V- upping the chance that you too can default on your mortgage, just like the last sucker who owned your house.
What do you want to bet that the former owner also used a loan that required virtually no downpayment? That’s probably a lot of why this foreclosure is available for you to purchase now. Just think, when you go into foreclosure, you can feel good that the same opportunity to live the "Dream of Homeownership" can then be extended to someone else.
And to think that some people believe that using bailout funds for these programs is a waste of money!
Obamamania is obviously alive and well. This just can’t get any more bizarre. The more you mix the “wards of the state” into neighborhoods the more depreciating values you’ll see in those neighborhoods. I see your next post is the Bernake softball interview. So on to that.
I don’t get the part about the disappearing equity. Can someone help me out?
“The program provides up to $30,000 for down payments, up to $5,000 for closing costs and up to $45,000 for repair.”
So let’s say the homebuyer buys a $200,000 home with $2,000 of his/her own money. Does the government kick in $30,000 to make the down payment $32,000? If so, then the homebuyer has 16% equity (if the purchase price has not been inflated)–a pretty good chunk made possible by the taxpayers that will not disappear in 2 weeks.
Additionally, will the homeowner get an extra $45,000 from the taxpayers to fix up the house? This will add additional equity if the $45K is spent wisely and increases the value of the house above $200,000. Let’s say the repairs add $20k to the house value. Now the homebuyer has $32K + $20k = $52k of equity. (Again, I assume that the original purchase price of the house was not inflated.)
It sure is a crappy deal for taxpayers, but if the program works as I described the homeowner will have a lot of equity that won’t be underwater unless housing prices continue to tank for a while.