Flutterby™! : real estate ka-boom 2006-10-06 19:20:54.385926+00

real estate ka-boom

2006-10-06 19:20:54.385926+00 by Dan Lyke 3 comments

What's causing the current real estate boom? SFGate looks at a young investor who lied and leveraged himself into overextension. He has a weblog in which he's allegedly pulling a "mea culpa": IAmFacingForeclosure.com, about being 100% financed in California's dropping real estate market.

And, of course, he talks about all of the standard practices: Lying on his mortgage application forms about owner-occupation, cash back at close (where the buyer and seller represent the sale as more than actual and the buyer gets cash back; I don't know what's in it for the seller 'cause the only conversation with a seller I've had on this matter was "I didn't want to get involved in those sorts of shenanigans", but apparently this is something that mortgage brokers push). Now that he's been caught up in all of this fraud he's starting to do some self-examination.

But he does have a point: The housing market has been feeding on itself and on frauds like this, and will continue to do so until banks start to get seriously bitten. It's a mass hallucination that, like any other Ponzi scheme, continues as long as there are more true believers to be found.

The banks are the root of the problem because they don't really care about whether borrowers are truthful or not, and they also keep pushing disastrous financing plans, like interest-only loans. The reason they don't care is because making loans of whatever caliber increases their bottom line, and when they go poof the losses are mostly subsidized by the government or written off. They're not hallucinating, they're just picking the best way to make money under the current regime, which protects them from their greed.

On the other hand though, Dan you have been saying the boom is goind to crash and burn for at least 5 years now. Having bought my house 3 years ago, I'm pretty confident that even if it does crash hard I will have seen my house value increase enough in that time that I wont lose any money if I were to sell it. I think people who get into the market today might be in for some bumpy roads if they are not careful, but people who got in at least 1 or two years ago are probably in good shape provided they didn't do anything stupid like you're descrining about this guy.

And if things really do go south for the market and everyone is getting forclosed on then maybe I can grab a nice cheap fixer-upper or rental property. :)

Yeah, I've been wrong about the Bay Area Real Estate market since longer than I've known you, Nathan... I just keep hoping that if I believe hard enough it'll come true!

If you're willing to hold on to a house, and you view it as a home rather than an investment, then, yeah, it'll at least keep up with inflation over the years.