EDITORIAL A NEW GOLD RUSH RECORD HOUSING PRICES HAVE SPURRED MANY CALIFORNIANS INTO TAKING SERIOUS FINANCIAL RISKS.STANDARD financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against wisdom holds that people should never, ever commit more than 30 percent of their income on housing each month. Doom, despair and possible bankruptcy may await those who overextend o·ver·ex·tend tr.v. o·ver·ex·tend·ed, o·ver·ex·tend·ing, o·ver·ex·tends 1. To expand or disperse beyond a safe or reasonable limit: overextended their defenses. 2. beyond that. But that wisdom clearly doesn't make much sense in modern-day California. A new gold rush is in full swing and the quest to get a piece of the market is pushing people and financial institutions into risky business. This includes 100 percent home loans - or even 110 percent, to pay for closing costs Closing Costs The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, - no-interest loans, and adjustable rate Adjustable rate Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. loans, which used to be rare and terrifying ter·ri·fy tr.v. ter·ri·fied, ter·ri·fy·ing, ter·ri·fies 1. To fill with terror; make deeply afraid. See Synonyms at frighten. 2. To menace or threaten; intimidate. things. Only buyers with more faith than sense would consider them. But now they are common and are even helping to drive up prices. If there were little demand for half-million dollar homes, they would be priced lower. But young middle- and lower-income Californians don't have much choice. Under the 30-percent rule only 16 percent of them could afford a piece of the American dream American dream also American Dream n. An American ideal of a happy and successful life to which all may aspire: as house prices keep hitting records highs each month. In July, the San Fernando Valley's median home price hit $600,000, or a monthly mortgage payment of $3,500, making it no surprise that California ranks second-to-last in home ownership rates among U.S. states. Can this be good for California or even America? Probably not. All this risk means that many people and families - more than a third of new homebuyers in California are households with children - have more to lose if the housing market bubble bursts or interest rates go up. For many economists, that's not an if, but a when. Even the smallest change in the economy, such as a rise in interest rates that leads to higher monthly payments, could jeopardize those homeowners with the biggest risk. What's also worrisome is that those taking on the most risk are those least able to weather a downturn in the economy. According to a study by the Public Policy Institute of California Public Policy Institute of California is an independent, nonpartisan, non-profit research institution. Based in San Francisco, California, United States, the institute was established in 1994 with a $70 million endowment from William Reddington Hewlett. , three-fourths of moderate- to low-income homebuyers are spending more than 30 percent of their paychecks on housing, and a third are spending more than 50 percent. This is not a good gamble for California. A strong state economy relies on a stable populace. If banks are allowed to continued to come up with riskier financing it will surely hasten the ruin of many, many Californians. |
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