Is Generation X Responsible for the Recent Housing Crisis? – Part 1
As everybody knows, the housing and personal loan crisis that the country has been affected with in the past few years ended up with a lot of finger pointing and people blaming just about everyone, ranging from politicians to the government itself. Politicians on their part, didn’t hesitate to put all the blame on Wall Street, while Wall Street immediately blamed the country’s government. To make things even worse, each and every political party put the blame for this crisis on the other political parties.
However, while everyone wastes time pointing fingers at one another, the real picture and drama escapes them: The ones affected by this personal loan and housing crisis are the real people on the streets, the ones who don’t earn enough to buy a house with cash and instead have to acquire personal loans and sign mortgages to get the home of their dreams. It is because of this that every authority should be focusing instead on how everything really happened and how people (real, hard working people) with personal loans and who suffer from financial woes can prevent foreclosure in the near future.
Recently, we managed to get a better picture about the crisis thanks to a paper published by the St. Louis Fed. The paper, titled “The Foreclosure Crisis in 2008: Predatory Lending or Household Overreaching?” provides a very clear picture about the financial conditions of the average household affected by foreclosure during the period of the housing crisis. One of the great sets of data that the paper compiled were the particular characteristics of personal loan holders during this recession period. Then, they classified these households using a special segmentation system, which classified them into each of 21 socio-economic groups that used additional variables, such as marital status and household size.
Some of the trends found from this data are quite surprising, here they are:
Generation X Seems to to be the Most to Blame:
The study found that the by far the largest amount of foreclosure homes belonged to people in Generation X with an estimate average income of $60,000 and with around 15 years or average education. This might sound counterintuitive of course, especially considering the relatively decent amount of income and education years that this generation seems to enjoy. However, the facts are there, and Generation X leads the leads when it comes to homes in foreclosure.
But to better understand the behavior of this generation when it comes to mortgages and personal loans, let’s take a look at other interesting pieces of data from the paper.
High Loan-to-Value Mortgages:
When reviewing mortgages in foreclosure, it was found that the median mortgage had an impressive loan-to-value of 65 percent. In the meantime, those mortgages that were in foreclosure had a staggering median of up to 96 percent.
This values are the result of couples or families having unrealistic expectations and thus, going through great efforts to afford the down payment before taking the mortgage or personal loan for their homes. In the home market, the down payment is actually meant to be a barrier for home owners. In fact, future home owners considering acquiring a personal loan or a mortgage should consider that the easier it is for them to cover the down payment, then the less trouble they will have financially when it comes to repaying the mortgage or personal loan.
And there we go for now. On our next entry we will continue taking a look at the fascinating reasons why Generation X might be one of the main culprits of the recent housing crisis. Stay tuned!