Financial Planning Stuff You Need to Know

One element of Obama’s housing plan that caught my eye is the provision that allows homeowners with less than 20% equity in their homes to refinance.

Many of my clients have wanted to refinance but been stopped because they bought their homes recently and didn’t have enough equity. This would open that option to them.

A reporter recently asked what positive effects moderating housing prices could have.  Here are my thoughts:

From what I observe the moderation in housing prices could have the following positive effects:

1. Lower increases in property taxes from higher assessments which have hit many communities and neighborhoods very hard over the past several years.
2. First time buyers taking more care in purchasing a home
   1. Not paying more than they can afford
   2. Making sure to do all of their due diligence inspections etc.
   3. Not having buyers remorse because they rushed their home purchases an bought before seeing enough houses
3. Fewer creative financing deals such as option ARMs means that fewer buyers will get in over their heads.

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The reporter also raised some potential benefits:

Should housing be viewed less as an investment and more as a living expense?  Will a moderation in home price appreciation help bring about this view?

1. I think your home should be viewed primarily as a place to live unless your plan to sell it in the near future.  Even if you saw it as an investment, it would be a speculative investment.  I think if people actually calculated their true return on housing it would be much lower than they think.  Maintenance, taxes, and buy/sell costs are often left out of the calculation.

Could a flattening of home prices spur consumers to diversify their portfolios which may be heavy with housing?

1. As much as I would like to see this I don’t think it will happen for two reasons:
   1. Housing is seen as a great investment by many
   2. Consumers may just spend vs. invest the money they would save.  Buying a house is the major form of savings for many people.

Will home buyers, particularly first-timers — find more affordable opportunities?

1. Yes, but since housing markets are very fragmented, an overall slowing in appreciation may not affect some hot neighborhoods.  It is my understanding that in most metro areas that saw a lot of appreciation this decade, houses at the low end of the market are still selling strongly, it’s the move-up housing that is suffering the most.