That Daring Young Man on the Flying Trapeze
Both consumers and lenders must prepare for economic flips and turns, and have safety nets in place.
“He’d fly through the air with the greatest of ease,
That daring young man on the flying trapeze…”
The lyrics of this popular 19th-century tune, inexplicably stuck in my head today, refer to Jules Leotard, a talented French trapeze artist.
Trapeze artists in the day of Mr. Leotard did not use safety nets, according to Wikipedia. Leotard’s graceful acts were performed over mattresses on a raised runway.
But today, safety is of the utmost importance for such performers and “Most modern flyers start out wearing a safety harness, while a trainer on the ground controls the lines and would pull them if the flyer is in a dangerous situation… Every safe flying trapeze rig has a large net underneath the rig” and safe falls also are practiced by today’s performers.
Like flips and turns in a trapeze act, recent economic activity in the housing market has created a breath-holding event for spectators and participants alike.
We can realize the importance of safety nets for not only trapeze artists but also for consumers who plan to make a housing investment and the institution that provides the loan. Perception of safety will allow both parties to take risks that will be mutually beneficial.
‘I’ve been doing lots of trapeze, and so much of it is holding your own weight.’—Patina Miller, American actress
Mortgages require that consumers hold their own weight, and lenders provide various safety nets in the extension of funds. Research findings this week reveal interesting homeownership trends, news, and consequences.
“Boomerangers,” those between the ages of 18-34 who find themselves living with their parents, comprise 39% of young adults, according to a recent Washington Post article. “There are an estimated three million boomerangers living in their parents’ basements who in better economic times would have created their own households.”
The article indicates that as this cohort attempts to strike out on its own in the realm of home ownership, it may find difficulty obtaining mortgages because they lack rental history and awareness of credit problems.
“The time when borrowers simply needed to be employed and have okay credit to qualify for a home mortgage loan is over… Boomerangers can still buy a home, they just need to prepare in advance.”
How might you help Boomerangers construct credit safety nets? How might you create appeal for this group?
Meanwhile, “Mortgage Lenders, Home Buyers Feel Rate Squeeze,” says The Wall Street Journal. “A rise in interest rates is slamming homeowners’ demand for mortgages, prompting large and midsize banks to cut jobs and warn investors of declining profitability in the home-loan business.”
The Federal Reserve indicates rate volatility is a critical issue. Lenders are anticipated to “originate $1.654 trillion of mortgages this year, down from $1.75 trillion in 2012. The decline is expected to bottom at $1.46 trillion in 2013 before rising again in 2015.”
Interestingly, “Jumbo Mortgage Rates Fall Below Traditional Ones,” says a Wall Street Journal video report. This rate situation has never occurred before, and is a consequence of “a combination of interest-rate volatility, government policy, and banks flush with cash that are enjoying lower funding costs, making jumbo mortgages an attractive investment for them.”
Watch this presentation to gain greater understanding of the phenomenon and appreciate the unusual impact of safety nets provided by government backed loans.
In other reports of government influence in mortgages, note “In Housing Finance Overhaul, All Eyes Focused on 30-Year Fixed Mortgage,” says The Hill. “Washington policymakers are fixating on how to preserve the 30-year fixed mortgage amid broader plans to overhaul the housing finance system, but differences remain over how long the government guarantee should go along for the ride.”
This interesting article analyzes the issue in detail and will prompt you to further consider the consequences and impact of the 30-year mortgage on our housing market.
“Foreclosure starts recorded during the 12-month period ending in July fell to an activity level not seen since 2007,” reports Housingwire.
Another interesting development the article identifies: “Refinancing activity through the government’s HARP program in July showed a unique trend with prepayments on loans with 100% loan-to-value actually increasing during the month.”
A further revelation: “Troubled assets are no longer a major headache… The real estate market continues to see fewer sales of troubled properties with distressed sales down 30% for the 12-month period ending in June. Short sales on their own fell 60% from last year, making up only 10% of sales.”
Consumer advantages of home ownership are outlined in two additional reports this week, including “The Benefits of Mortgage Interest and Property Tax Deductions” are from the Urban Institute. “The benefits of tax expenditures for homeownership also vary by age and family structure.”
The article examines these variances, and for high-income households tax expenditures for owner-occupied homes are advantageous for three reasons:
Five social impacts of home ownership after the housing crisis are examined in a Harvard University report. It explores the consequences on psychological and physical health, social and political participation, and neighborhood/social capital.
To summarize, “No extraordinary efforts will be needed to attract American households back into the housing market,” and “attitudes toward homeownership as a financial investment have been steadily improving since the height of the housing crisis.”
However, “The jury is still out… on several other claims including improved physical health, and both the cognitive abilities and positive behaviors of children.”
Jules Leotard captured the audience with his high flying display of grace and skill on the trapeze, but even this expert artist knew the importance of a mattress to catch him should the unexpected occur and a fall result.
Like Leotard, both consumers and mortgage providers need to be prepared for the flips and turns our economy presents and have safety nets in place. There are many advantages to be gained for both entities taking calculated risk.
Becoming well-informed is a way to construct a safe enterprise, and it is quite possible for us to fly through the air with the greatest of ease.
In the words of Warren Buffet, “Risk comes from not knowing what you’re doing.”