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The Real Reason For The Housing And Financial Crisis
Larry Angell 
Larry Angell
http://www.make-my-own-house.com
My own personal opinions and views about the housing market are drawn from years of study and experience in home construction, real estate, and economics. The massive housing meltdown and financial crisis is the result of improper business methods on the part of many.
The government financial bailout is a short term cure that is only treating a side-effect of the real problem. The real reason for this mess is that new homes are severely overpriced.
Home construction costs, especially in the more affluent states, have sky-rocketed in the last decade without a major correction. The price of building materials has stayed about the same over the last decade, but the price of labor has gone out of control.
The banks and lending institutions are taking the rap for making unstable loans, but they are not remotely the only ones to blame. When homes cost more to build than they are worth after they're built, it causes a lack of collateral or equity if a loan is to be made. In this case, banks have only two choices, make no loans at all or make high-risk loans.
Banks have deviated from the twenty percent down payment rule on homes because of consumer's low wages and high inflation. The income to expense ratio has never been worse. Creative financing has helped some people get into homes, but recently it has caused more harm than help.
There is a common sentiment that homeowners are getting in over their heads with risky loans without reading the fine print. This is true in many cases. Many people also feel that the homes are bigger and more luxurious than the homeowner needs. This is not true in many cases because these homes are modest, average houses with a high price tag.
The government bailout will help the credit markets, but that really does nothing to solve the real problem. Being able to build less expensive homes is the solution, but that's a very difficult thing to do unless we're allowed to do our own labor.
Contractors have basked in unusually high profits from labor for the last decade without anyone stepping and haggling over labor costs. Banks just give them what they ask for to get the homeowner "into a home". Easy credit has made easy money for a lot of contractors, but there are other reasons for high labor costs besides greedy contractors.
Many of the wealthier cities and states have very strict building codes and regulations. Homeowners have to hire experienced contractors and aren't allowed to do any work for themselves on their own house. There are also many more contractors involved in each home construction project as different jobs become more specialized. Permits and fees are very expensive also.
Many of these unnecessary regulations and services have been put in place by wealthy individuals who can afford paying a high price for things. Other code requirements are unnecessary methods or components that serve the private interests of individuals or companies to help them line their pockets.
Homes in many areas have finally become more expensive to build than they are worth after they're finished because of unnecessary codes and greedy contractors. A housing market correction will help bring this into balance by causing contractors to become more competitive in a starving market.
Construction labor prices need to fall dramatically before a complete correction and recovery can happen.
Larry Angell
Article submitted Tuesday, September 30, 2008
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