Saturday, April 7, 2007

Subprime lending news - following up

The Washington Post has economist Dean Baker writing an op-ed piece on the subprime meltdown. More of a policy article than probably fits comfortably here, I still suggest reading this. I am only excerpting two of the more interesting points:

The full effects of the collapse of the subprime market remain to be seen, but it is not too early to talk about the policies that got us here. In particular, the government policy of promoting homeownership should be examined.

If, say, those fees came to 10 percent on a $200,000 house, or $20,000, then the transaction costs would have added $5,000 per year to the housing cost for a typical moderate-income home buyer. Since the median annual rent in Washington is only around $9,000, the transaction costs associated with buying and selling a home are significant. A family that lived in a home for only four years almost certainly would have been better off renting.
I added the italics. A bit to think about, especially if you are thinking of buying a home right now. My earlier post on the subject is here.