Where Should I Live? ….on Momma’s Couch is not the correct answer!

Living Spaces  Multigenerational Home (1600’s-1950’s)  Homestead (1600’s-1930’s)  Single Family Home (1950’s-current)  Duplex (1950’s-current)  Tenement/Apartment (1600’s-current)  Condominium (1920’s-current)

Objectives  Identify housing types and pros/cons  Examine societal factors of housing  Analyze how consumer choice drives home markets.

Social Changes drive Living Places  About 65% of Americans live on farms/rural areas in  By the end of WWII that number dropped to 54%  By 2000, only about 13% of Americans lived on farms/rural areas  Why?

The Metropolis  Rapid urbanization and population shifts reshaped the US  People shifted from North and East to West and South  US Top 10 in 1900

Top 10 for 2005  1 New York New York 8,085,742  2 Los Angeles CA 3,819,951  3 Chicago Illinois 2,869,121  4 Houston Texas 2,009,690  5 Philadelphia PA 1,479,339  6 Phoenix Arizona 1,388,416  7 San Diego California 1,266,753  8 San Antonio Texas 1,214,725  9 Dallas Texas 1,208,318  10 Detroit Michigan 911,402

Rentals  Security Deposit (usually first and last month)  Lease = long term rental at discount price  Arizona Residential Landlord and Tenant Act protects renters

3 C’s of Credit Financing-Establish GOOD Credit! –Capacity to repay loan –Character proves history of repaying loans –Collateral to secure loan value

How to Buy a home 1  Location, Location, Location!!!  Real Estate Agent  FSBO  Foreclosure Auction  HUD Homes  Save up a down payment of 3%-20%

How To Buy a Home 2  Two categories of Home loans –Prime= good credit risks but low profit for banks Low down payments and Low interest rates –Sub-Prime=more risk of default, but more profit Higher down payments and Higher interest rates  APR (interest per year on loan) –Fixed Interest Rate –Adjustable Rate (ARM)

Amortization of Loans  Interest First, then Principle –Fixed APR payments are even over term Why might this be a benefit? Drawback? –ARM’s reset after a certain number of years Why might this be a benefit? Drawback?  Rule of Thumb – Interest on a 30 year loan will equal purchase price times.9  calculator.asp calculator.asp

Home Equity Growth  Current Home Value-Purchase Price  Many Owners took “Equity” loans during the 1990’s to finance big purchases at lower rates.  Due to Economic Troubles, many owners now have negative equity  arch.htm arch.htm

Foreclosure  Occurs when a owner defaults-no longer makes payments on loan.  Foreclosure notice is served by the country sheriff and occupants must vacate –Even if you are renting!  The owner loses any principle accumulated.

The 2008 Crash  Starting in 2001, many sub-prime borrowers were offered sub-prime ARM home loans, with encouragement from the government.  This set off a huge home buying boom.  Starting in August 2007, many of these borrowers began to default. Some just sent their keys into the bank-”jingle mail”  Banks who lost money then made claims on their insurance companies, who then could not pay back the 1/2 trillion dollars in claims.

Wrap Up  Where to live is a emotional and financial decision.  Housing patterns are shaped by bigger influences in American Economics  Housing is the largest asset most people ever own-both for good and bad!