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Home Values and Low Income Communities

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The rebound in housing, though long in coming, has started to lift property values across the nation. Millions of home owners are now above water with their mortgages and in some markets sellers are benefiting from bidding wars. Hedge funds that invested in property, generally open lots, during the recession are seeing prices appreciate enough that they are now selling. Yet there is one segment of the market that has seen little to no improvement in property values, that segment is low income communities.

Located across the country and often abutting or close to wealthy communities that are recovering well, these low income communities are stuck in a cycle that will make recovery both long and very challenging. Having “benefited” from high property valuations and low credit and income requirements for mortgages during the boom years, these communities where impacted to a far greater degree when the market turned. Stagnant wages and job losses lead to increased foreclosure… More foreclosures increased housing supply, suppressing property values… Empty homes negatively impacted the desirability of the community, reducing demand and further depressing values… Homeowners in these communities fell further underwater on their mortgages and now are unable to refinance or sell.   

In his article “Why the U.S. Housing Recovery Is Leaving Poorer Neighborhoods Behind”, published in the Wall Street Journal, Mr. Joe Light takes an in-depth look at this problem and the impact it is having on lower income homeowners and communities. In addition, Mr. Light touches upon the ongoing debate for government intervention in implementing a mortgage principal reduction plan for underwater, low income homeowners. While there is no doubt that such a plan would help individual homeowners, the cost/ benefit to the tax payer footing the bill has yet to be defined. What are your thoughts on a principal reduction plan?

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