Monday, November 5, 2007

Sub-Prime Dilemma

Tree Trunk: 11/05/07





Are Consumers the Solution for the Sub-Prime dilemma?

In the business world supply and demand is what rules; when demand is greater than supply the equity of the product, service etc. increases. When the supply is greater than the demand the price decreases.

Using this analogy in relation the down-turn in the real estate nation wide; which has been blamed on the mass marketing of sub-prime loans. Mortgage consumers should shy away from any form of sub-prime lending.

The market will take care of it’s self (self adjust). In other words when there is no demand for loans that are adjusted to make qualifying easier, but make a hardship on the buyer in 2, 3 or 4 years down the road because the payments are raised. When the number of consumers that can not buy because of not being able to qualify for fixed rate mortgages increases interest rates will come down.

Sub-Prime loans are quick fixes that we as consumers pay dearly for. They are designed to help “First Time Buyers”, Minorities” and other targeted groups. These loans are abused and used by buyers that buy more than they can afford; not starter homes but upper middle class homes.

Let’s face the facts. The Lenders want to lend money and the Government wants to lend money. When the demand decreases the cost to barrow will go down and the supply will increase.

The above is an over simplified projection. There other factors that determine the cost of borrowing money.

Money is traded just like commodities such as corn, heating oil etc. The housing market is just one factor, but a major one. Energy industry and the automobile industry are both very large forces that influence the economy, And therefore have an influence on the cost of borrowing money.

Comments welcome

Larry Wittenbron

Tall Tree Realty

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