Flutterby™! : Housing bubble 2004-04-04 20:51:19.740063+00

Housing bubble

2004-04-04 20:51:19.740063+00 by Dan Lyke 3 comments

There was a mention at Medley and later another at Backup Brain of There Goes the Neighborhood: Why home prices are about to plummet--and take the recovery with them. Which, of course, is something I've been predicting for the better half of a decade now, so I'm left with something of a quandary: It's fairly plain that the optimists generally win, but I'm also realizing that my timing is wrong and that understanding that the house of cards is unsafe doesn't keep people from getting some good use out of the paper building. Obviously my being "right" in seeing the meta-situation isn't helping me to exploit the underlying dynamics.

Some re-thinking of certain positions is in order.

Yeah, clearly there's a slowdown coming for housing (espcially some of the related markets that depend on churn like mortgage banking and real estate brokerages).

However, I don't see how this will have a giant impact on the economy like the article predicts. The fact of the matter is that most people do have fixed rate mortgages (so they've got protection from interest rate hikes) and a major hit in property values just means that people have to quit moving (the terms of the mortgage aren't going to change). People who are leveraging equity right now are almost certainly doing it to pay down credit cards and other "high risk" credit, so they're actually in fairly decent shape. It would appear it's going to take a bunch of other things going wrong in addition to property value drops to screw things up real bad.

The only thing I see is that high unemployment rates have been regional over the past few years. People who lost jobs in one part of the country were often able to find jobs by being willing to relocate. People finding themselves upside down with their mortgage and losing employment is going to present a completely different set of circumstances to the mix. It's going to lead to an even greater increase in the number of people filing for bankruptcy protection which means that those folks won't be contributing to consumer spending which has been buoying the economy.

Buying a house was a heck of a step for me, mostly because it made a commitement for me to 'stay put' for a while. I rationalized it lots of ways, saving on cap-gains taxes, lower monthly recurring living costs, potential investment.. but it came down to really making a decision to stay in Chattanooga, near friends unlike any I had ever had in my life, and to continue to be part of a community I loved.

What hurts the world is that mortgage bankers and realtors will help a person 'over-buy'. A friend of mine just pre-qualified for $250k for a house.. and the realtor kept showing her $250k+ houses. She found a great place for well under $149k (not sure how much she paid finally), which gives her a great home on Signal Mtn, and a cushion on payments and living expenses in case jobs or other things change. We tend to, as a society, push our spending power to the limit on houses, and then be 'house poor' as a result. Not smart.

So Dan.. If you decide to buy a property, buy it because it is worth it to you, now, in todays dollars, to buy that property. And my other piece of advice: DO NOT TRUST "REALTORS". - I used a 'Buyers Broker'. Find a good one that does not also 'list houses' and listen to them. They get paid to be an expert, from YOUR (a buyers) perspective either on a flat fee or percentage. I spent more than I wanted to on a house because of one, but got an incredible value.

Last comment, and then I gotta get some real work done: I never liked yard work, plants, etc.. it was never 'my yard'. Ownership makes an interesting perspective difference.