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  • #76
    I in turn have to make it even simpler. How a home is financed does matter. To demonstrate we'll do some time travel to see the difference.

    Let's go back to 1985. You see a house for 300k and want it. Your income is 50k and you have nothing in the way of savings, typical. You apply for the loan and the bank looks at you and asks, are you high? No down payment and not enough income. Back then, the general rule was 3 to 1. The permitted price was three times earnings with 20% down.

    Fast forward to 2005. Same scenario, just as typical. The bank approves it. They know you're lying on your loan app but can't do anything about it because sub-prime and liar loans are mandated by the congressional housing committee.

    So, how would that affect price? Quite a bit. Back in 85 the number of potential buyers for that 300k house would be few and far between. In 05, every other person would qualify which puts a huge strain on demand. That drives the price up. It's more like 600k or better for that same house because of it. Make things too easy to buy and prices go up.

    Your mention of periodic costs to income isn't relevant. No one believed prices would fall, not even the Fed or Treasury. Not that anyone did the math to determine the amount spent versus potential return if and when they might sell their home in the future. It was a simple function of people wanting to buy what they can't afford and the government making it too easy.
    This message brought to you by the vast right wing conspiracy.

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    • #77
      <BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by davdah:
      I in turn have to make it even simpler. How a home is financed does matter. To demonstrate we'll do some time travel to see the difference.

      Let's go back to 1985. You see a house for 300k and want it. Your income is 50k and you have nothing in the way of savings, typical. You apply for the loan and the bank looks at you and asks, are you high? No down payment and not enough income. Back then, the general rule was 3 to 1. The permitted price was three times earnings with 20% down.

      Fast forward to 2005. Same scenario, just as typical. The bank approves it. They know you're lying on your loan app but can't do anything about it because sub-prime and liar loans are mandated by the congressional housing committee.

      So, how would that affect price? Quite a bit. Back in 85 the number of potential buyers for that 300k house would be few and far between. In 05, every other person would qualify which puts a huge strain on demand. That drives the price up. It's more like 600k or better for that same house because of it. Make things too easy to buy and prices go up.

      Your mention of periodic costs to income isn't relevant. No one believed prices would fall, not even the Fed or Treasury. Not that anyone did the math to determine the amount spent versus potential return if and when they might sell their home in the future. It was a simple function of people wanting to buy what they can't afford and the government making it too easy. </div></BLOCKQUOTE>
      Davdah, you are confusing the difference between acquisition and price. Price is not determined by finance, it only determines acquisition. Any reasonable seller is not going to lower the price because you cannot obtain the financing Davdah. They will do it for other reasons, not because of financing. And it is those other reasons that the price is being lowered regardless of whether you obtain financing or not.
      "Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." John Adams on Defense of the boston Massacre

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      • #78
        "Any reasonable seller is not going to lower the price because you cannot obtain the financing Davdah"

        Ever hear of cash discounts? How about being charged convenience fees if paying something by credit card? Another that is directly attributable to housing is the simple rule that cash is king. A cash buyer will usually negotiate a lower price than one using financing. It happens all the time.


        I'm surprised you don't see the connection between making financing too easy to qualify for and prices being run up because of it. It's what caused the housing bubble and put millions into bankruptcy with credit being disseminated like candy on Halloween. But, being a government type you wouldn't see it and is why the big crash happened.


        If the objective here is to get my goat, you can have it. However, if you have some nefarious purpose in mind like ritualistic sacrifices or deviant acts, you'll have to pay extra. Financing? Oh, well, you'll have to cover the lost use of money for the time so we'll tack on some interest too. I guess method of payment can impact the cost of something, surprise!... surprise!


        This message brought to you by the vast right wing conspiracy.

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