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So it seems to me that the mess that our real estate market has created looks like this:
Loan programs were created that required no real buyer commitment. This created a boom in the real estate market and thus a rush to create more supply. By “creating” more demand by qualifying suspect buyers, higher supply levels were absorbed.
Loan defaults by high-risk borrowers and the subsequent termination of the high-risk lending practices slashed demand and supply began to mount. Demand dropped so greatly that the federal government stepped in to stimulate the market with a housing tax credit. The “first time” homebuyer was targeted as a way to expand the buyer pool (demand) and to hopefully reduce supply.
The current crop of first-time homebuyers has been creamed. Even if the tax stimulus was extended, it would not fix our problem (think of law of diminishing returns). The fact is we need to solve the down-payment issue in the mortgage markets.
In order to “bridge” from the current situation to a normalized housing market, we have to create loan products that do not put the lender at unacceptable risks, but give the move-up home buyer the ability to buy a new home.