Mania or a Calculated Risk?

Stopping by the Mises Economics Blog this morning I discover a post titled “More Tales from the Real Estate Mania." Within the post, written by Robert Blumen, there is a link to a Bloomberg article titled “Greenspan Backs Homeowner Debt as Prices Increase (Update1)."

Both Blumen’s post, and the Bloomberg article, take a look at some of the creative ways lenders are coming up with to get individuals into homes with lower payments.  These include adjustable rate mortgages, interest only mortgages, skip a few payment type mortgages, negative amortization mortgages, etcetera.  The gist of the Bloomberg article, and Blumen’s post, seems to be cautioning against “over exuberance,” or the “Tulip mania” of the Dutch, of way back when, if you are considering one of the mortgage programs discussed here and in the articles.

Though there is some truth to the cautions, one must remember that the programs discussed can be powerful financial tools for the borrowers.  Sure there are risks, but if one educates themselves about the market where they are purchasing a home, or, if the buyer works closely with an honest Realtor and mortgage lender, who lay out for them the upside and downside, the programs may be just what the doctor ordered.  A sound, calculated risk.  You take them everyday whether you realize it or not.

Posted by on 03/26 at 06:31 AM

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