The point I like in this piece is that there is a bright side to a foreclosure. When a home is foreclosed on, the lower resulting price allows a family to now afford a home that probably could not before. This is particularly evident in the very expensive markets of California and the Northeast US. We all see the people leaving the home, but rarely do we think about the new family moving in.
The subprime mortgage allowed families that could not attain homes with traditional mortgages (due to the high risk they represented to a lender) to finally achieve their dream of home ownership. What is/was unfortunate is that many of these families could not afford these complex mortgages once mortgage rates that were adjustable, re-adjusted. To compound the problem, homes have now fallen in value which has resulted in a negative equity position for many home owners since very little money down was required. As a result, these people cannot afford to sell their property and pay off their mortgages. So the logical thing for most of these families is to stop paying the mortgage and move on with their life.
When these families move on, it allows other families to move in. This is a great prospect for these new families as they finally can realize the American dream. In some cases, it will allow young people to get established that could not afford housing that has risen some 60% in the last 5 years. The bright side to falling prices is greater affordability.
Houses that are foreclosed on do not disappear. The asset does not vaporize into thin air. It becomes a domicile that is now cheaper and thus becomes more affordable for more hard-working families. That is a good thing.
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