[quote=bearishgurl]In order for the current FHA debt ceiling to make sense, the ~$80K home in 1984-1985 should cost over nine times ($697,500/77,000) of a similar one today ($720,000)!
As we can see from the above listings, they do not (and likely never will).
So the $64M question is, what is the FHA doing guaranteeing mortgages in markets which are NOT the prospective homebuyers they were put in place to serve?[/quote]
BG,
The FHA (and GSE’s) increased loan limits and lowered standards precisely when the private mortgage market began to have problems. These loan limits and other changes were designed to bolster the housing market in order to stem the losses in the financial industry. It had nothing to do with trying to help the poor, hapless new homebuyers; it was all about protecting the existing mortgage(and related derivatives) holders.
And livin’ is totally correct about prices being set by new buyers — the buyers who are willing to leverage the most and pay the highest price. The fact that local residents have low/no mortgage balances does NOT affect pricing.
Even if no homes in a particular area are sold, the price is not whatever the current owners “want” it to be. If there are no nearby comps, other comparable areas/homes will set the prices for that area. Housing IS a highly-leveraged purchase in almost all cases. Interest rates, general credit expansion/contraction, etc. play a MAJOR role in the prices of leveraged assets.
