The housing market has never truly been cleansed of the bad loans because so many people are under water in their mortgages and the banks will not let them renegotiate their principal balance. This creates people who either:
- Default on their loan and will be foreclosed on because they can not pay their mortgage
- Can not sell their house because they can not repay their loan balance and they will continue to pay a mortgage that is outsized to the value of their house.
These are all bad things for the housing market.
Most people buying houses now are people who have money ("rich") or have paid down their loan balance. Currently there are very high lending standards for most people to get loans OR people are getting FHA loans which require 3% down. This was the same issue we faced back in the day with Fannie and Freddie. The latter is something keeping the housing market afloat in my view because most people do not have the cash to make a huge down payment.
How this all comes together is that the housing market has recovered to an extent, but it is still very fragile and that an increase in interest rates or a continuing lackluster recovery could take us backwards very quickly.
I think this issue should be discussed honestly. As Americans, we can not always have everything we want. Just remember the days when our parents and grandparents saved and saved for a 20 or 30 percent down payment. We are always in need of immediate gratification and maybe buying a house when you do not have the money is not a good thing....more to come.