Monday, January 27, 2014

One Home as a Microcosm of the Housing Bubble

The N.Y. Times has a realy thorough piece on the history of 12204 Backus Drive in Bowie, Maryland.  Built in 1990, the home incapsulates all the highs and lows of American real estate over the last 25 years:

But by 2002, prices had been rising for roughly a decade — and Roberto Ramos and Chong Kim, owners of a seafood takeout counter, bought 12204 Backus Drive for $299,000. They put 10 percent down and took out a fixed-rate mortgage.

Like so many houses at the time, this one quickly became a source of cash. Mr. Ramos and Ms. Kim refinanced twice, which allowed them to siphon out $175,000. In retrospect, such behavior may seem reckless; hundreds of thousands of people wouldn’t have lost their homes in the crash if they hadn’t depleted their equity during the boom. But for those with good timing, like Mr. Ramos and Ms. Kim, the system worked: In April 2006, they sold the house for $540,000, more than enough to pay off their loans. The value of 12204 Backus Drive had risen 80 percent in four years.

Even at that price tag, the house struck Leslie Johnson as a good deal. Rising prices had taken on an aura of inevitability, and the whole country seemed to believe that they would never fall. [...] The $540,000 price of the Backus Drive house seemed beyond her reach. But after providing documentation of her income (which she declined to disclose publicly), she was told that she had been preapproved. “They told me to go ahead and buy and just refinance later on to a more manageable mortgage payment,” she said.

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