The "wealth effect" in housing is partially being stabilized by low interest rates; monthly mortgage payments are stable due to relatively lower interest costs that have helped buttress higher sales prices. Many lower income households are trying to buy homes due to skyrocketting rents which has created an artificial increase in demand; many of these "pre-approved" bids (like credit card offers) fail to qualify for loans but are encouraged by realtors in order to inflate demand. This highlights my point concerning the unequal access and cost of consumer credit; refinancing is only available to homeowners with acceptable credit histories and/or equity. Like stock ownership, the article ignores the strapped social groups that are rentors and young households with little equity in homes.
The housing industry is concerned that the lack of equity in homes will have a substantial impact on forclosure rates during the impending recession since it will be economically "rational" to walk away from homes that are "upsidedown"--greater debt than sale value. Not surprisingly, consumer bankruptcies are rising in 2001 at the same time that the banking industry seeks to "reform" the bankruptcy code to its advantage.
bob manning
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