confusion about mortgages & appraisal values
Hopefully one of you more knowledgeable people can clear up a bit of my confusion regarding the housing loan crisis and how it relates to how municipalities value their homes. Where I live, Austin TX, home prices have at least partially been driven up by increasing home appraisals on the part of the county and city. For example, the house I live in (which thank the gods I rent and don't own) has increased in value from about $80K 10 years ago to about $250K as of last year's appraisal, largely due to location (less than 2 miles from downtown in a "hip" area) and expansion of the tech industry. Homes in the neighborhood in recent years have sold for as much as $350-400K when they were valued at less than $100K only a few years prior. Do the banks have anything to do with the setting of these values or do they merely rely on them when determining how much of a loan to apply to a house? If it's the latter, can the banks actually be called on to do anything about increasing home prices and the resulting monstrous loans or do the cities themselves also have to decrease the values of the homes? Like I said, I don't actually own a house so am not familiar with the vagaries of the home loan industry (and I'm not sure I ever personally want to) but would like to have a better understanding of the true nature of the problem and what's necessary to fix it. The ensuing ripple effect of housing prices also concerns me: even if one doesn't own a home, it's become increasingly difficult to find affordable rental housing, at least in our city. Only California, Seattle, and New York have higher housing prices than we do. What really has to happen for housing prices to fall to affordable levels, or is that roundly considered to be a bad thing from an economic perspective? Capitalism confuses me: it seems that what's good for the system is bad for the populus, and vice versa.