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Friday, November 23, 2007

We're All Subprime Now

by Tanta on 11/23/2007 09:20:00 AM

A little cognitive dissonance with your coffee from The Arizona Republic, via our friends at Housing Doom:

The Valley's growing foreclosure problem is hitting the upper and middle class the hardest.

Metro Phoenix homes in neighborhoods where prices range from $400,000 to $450,000 now have the highest foreclosure rate. . . .

All segments of the Valley's housing market have been hurt by falling home prices and rising interest rates and payments on adjustable-rate and subprime mortgages. But the problems are worse for homes in the $400,000-to-$450,000 range because many speculators bought in those neighborhoods, some families moved up beyond their means, and the recent credit crunch has made getting mortgages for more than $400,000 tougher. . . .

"The two groups of homeowners hit the hardest now are investors and those who overextended themselves," said Jay Butler, director of realty studies at Arizona State University's Morrison School. "That's why more people in higher-end neighborhoods are struggling now."

Also, there are more loan programs to help lower-income homeowners, while fewer lenders are eager to make loans above $417,000. Mortgage giants Fannie Mae and Freddie Mac are restricted to mainly [sic] investing in loans below $417,000.

"Often, people with lower incomes are better prepared to survive tough times and look for help," Butler said.

"People with higher incomes and bigger homes have a harder time telling neighbors and co-workers they can't afford their mortgage anymore."
Let's skip over the part about how those poor folk with no pride are "better prepared" than their wealthier brethren who face the horror of admitting to their equally overextended peers that they're in the same boat as the working poor but like to pretend otherwise. We have to skip over that part because it's still a holiday weekend and I don't need to get that cranky today.

Let us, instead, ask ourselves what constitutes the "upper and middle classes." If they "moved up beyond their means," then . . . their means are what, exactly? If 100% or near 100% financing is required to keep these neighborhoods stable (loans over $400,000 for houses in the $400,000-$450,000 price range), then in what sense are they neighborhoods of the "upper and middle classes"? Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home? Things seem to have changed since I did Econ 101.

What is the utility of this kind of thinking?