I have been reading up on the housing bust lately and saw a map of foreclosure rates from 2005 and then another map, below it, that shows the rates after the bust in 2009. I saw two thing that were very interesting. The first was that very rural states in the middle of the country saw almost no change (chalked that up to low population, not a lot of homes, low foreclosure rates). The other was that Texas, the second largest state in The Union also saw almost no change. When I read around, the foreclosure rate in Texas only bumped up from 0.26% to 0.32%, but compared to other states of similar populations it came out pretty much unscathed. It is more likely that this uptick was related more to the downward movement in the economy (people losing jobs) than the housing bust.
I had to ask the question why? It turns out that Texas has it written into their constitution that you can only borrow up to 80% of a home's value. This means two things. People who purchased a home were able to show enough discipline that they could save 20% of its value for a down payment and if a homes value were to go down these people would not be underwater in their mortgage, and thus, there is less motivation to walk away.
At one point in time the entire country used to have the policy that you could not purchase a home without a 20% down payment, but over time, through poor government and business decisions, we have been allowed to borrow more and more of a homes value. People have been taking equity out of their homes for all sorts of reasons and borrowing up to 100% of a homes value for lifestyle decisions and not out of necessity.
I do not ever recommend taking equity out of your home , but if you do, it should be for the improvement of that property. In other words you are using the home equity to improve the value of the home. Stay away from consolidating debt or using home equity to pay for other things. It is one of the main reasons so much of the country is hurting right now.
One Response to “What We Can Learn From Texas About Housing” Leave a reply ›
First off, good for Texas. Not only have they avoided the housing bust, but their government and economy are doing well. I wish there was more common sense happening here in California. We could use some.
I wonder how long that law has been on the books. As I recall, Texas was one of the boom and bust states back in the '80s. People were walking away from their homes and leaving the keys in the door. Maybe, they learned a lesson in the '80s that California, Arizona, Nevada and Florida should learn this time around.