Kick-starting Worcester’s market

"That money could provide an estimated 250 mortgages -- ranging from $300,000 to $400,000.
...
Sale prices have also dropped, with the median single-family home sale price dropping nearly 12 percent in the same period, to $200,000."

That seems odd - where are the $200-300,000 mortgages? Maybe Worcester doesn't need people who don't make too much money buying houses which are way overpriced - maybe it's good that the median price has dropped to $200,000, since that's what many people can afford comfortably if they're making less than $50,000/person, especially if only one person/household is working steadily.

jchristian:

I think Stacey was explaining her estimate of 250 mortgages; in fact, given the median home price of $200,000, and the fact that the program extends to condos as well, we're probably talking about 300 potential loans. But that number entirely misses the point. Every time some public agency unveils another initiative, they include a calculation of how many fokks might conceivably be helped by it. But that's never the same thing as the number of people actually aided - often, it's not even in the same ballpark. And in this case, there's extra reason to be skeptical. As best I can tell, the program mostly involves taking a variety of pre-existing programs (SoftSeconds, MyCommunity, MassAdvantage, etc.) and repackaging them as a single initiative. That's useful, particularly for the low-income homebuyers who are typically also low-information buyers, and have difficulty locating and accessing such programs. But there's no sign that these projections involve the number of additional buyers who will be reached by the initiative, or, in fact, are the product of anything more sophisticated than basic long division.

Let me also voice my dismay about the prospect of more no-down-payment loans. One lesson of the housing bust is that home ownership isn't right for everyone. Buyers who default on their loans are always, always worse off than they would have been had they rented, instead. Downpayment assistance programs are eminently well-intentioned, and generally catastrophic. Historically, SoftSecond worked well - as long as interest-rates were falling. More than a third of borrowers refinanced and repaid the loans early, through 2006. SoftSecond loans defaulted at remarkably low percentages, and delinquencies were unusual. That's all fantastic. There's no doubt that SoftSecond is vastly preferable to run of the mill second mortgages, or even 20%-down loans at extortionate subprime or adjustable rates. But how is SoftSecond performing in the current downturn? Tough to say. The numbers cited in testimony and press releases over the past few months all come from a report issued last year that included data through the end of 2006. We do know that loan volume in the program is increasing. The problem is that the past isn't a terribly could indicator of the future. The reason that SoftSecond worked so well in the past is that it offered relatively low, stable payments - no ballooning rates. And with rising housing prices, borrowers who got into trouble could always bail out. But at the moment, housing prices are falling rapidly, at least in many less-affluent communities (yes, a little Marcus bait). And that's precisely where this program has been most active, with 150 or so loans outstanding in Brockton and Lawrence, and almost 400 in Worcester, as of the end of 2006. So what happens to a borrower who can't make their payments anymore, because of - say - a health care crisis and its attendant expenses? Well, they're quite likely to have negative equity in the house. And that's not a pretty place to be. In fact, I'd go so far as to say it's downright cruel to offer no-down-payment loans in a falling market. That's just too much risk for families who are, definitionally, low-income.

Whew, I'm glad jchristian saw that too...what's the deal with the mortgage ranges? What if someone qualifies for the $3-400k loan, but only wants a $200k mortgage, tough beans? In addition to that I'm guessing no one else has heard buyers are *finally* being prudent and considering that their jobs are not fail safe and employers are downsizing?

It's great this program exists, unfortunately the message I read being conveyed is this: "...must act now...to reduce trends..." or maybe I can rephrase: "buying and selling real estate is what keeps our local economy propped up - ignore everything else you hear, see, and experience." Surely that can be recognized for the nonsense it is.

If we're so worried about the incomes of Worcester real estate agents, it would be cheaper to send them each a check and bypass the middlemen.

The only legitimate way to kick-start Worcester's housing market is to kick-start its economy. The last thing we need are more buyers taking out mortgages they can't really afford to shackle themselves to depreciating assets. Because all of those buyers will be back looking for another bailout in a year or two.

Find a way to provide growth and employment in the local economy, and the housing market will take care of itself.

Thanks JChristian for clarifying the post for me. The Buy Worcester Now program doesn't require people to take out mortgages of $300,000 to $400,000. That was a rough figure used to demonstrate how many people could possibly be assisted through the program. If people needed smaller mortgages, more people would be assisted. Thanks for reading.

My deepest apologies for needing to say this (because this is going to tick some people off), but if somebody was able to spend 400k on a home, I would suggest they move to a better place than Worcester.

Thanks for the clarification, Stacey!

great call Marcus. Bring jobs to Worcester and all else falls in place. The only way to do this is cut taxes for everyone.

Middle, I'm just curious, have you actually ever been to Worcester? I've been to many cities throughout Mass., and I have to say, I think Worcester gets a bad rap for whatever reason. It's actually pretty nice.

Another two thumbs up to Marcus. State government has been working hard to make housing more affordable. And guess what? Now it is!

The time has come for Beacon Hill to declare victory on the goal housing affordability, and focus instead on growing jobs in the commonwealth. The first move should be to restore the name of the office of Housing and Business Development to it's former name: The Massachusetts Office of Business Development. A new focus on job creation will spur income growth, and feed the recovery of the housing market.