Comments (11)

• Person

  Great article, but just one quibble: Though unpleasant, it is a sound much to be preferred, since it reflects a housing market returning to fundamental levels, as well as one that will offer buying opportunities to many who currently cannot afford housing
  
  

  They *can* afford housing ... a rental unit is housing. Westley seemes to be ridiculing, as "not housing" those that see the dangers of buying a home for wrong reason.

  Published: May 17, 2007 11:00 AM

• Michael A. Clem

  Love the accompanying picture. "Mr. Housing Bubble" - heh.
  

  Published: May 17, 2007 11:51 AM

• johng

  I get everything except the bit about the weak dollar in the 1990s. The late 1990s were when Allan Greenspan was tighening the dollar to fight "irrational exuberance" in the stock market. The dollar strengthened to the point where gold hit a low (high?) of $253 an ounce driving the price of a gallon of gas under a dollar. It was during and after 2001 when the dollar was re-weakened and interest rates were lowered making mortgages more affordable and driving up housing prices.

  Published: May 17, 2007 10:19 PM

• D.D.Grant

  What is rarely asked is why home ownership ever became the American Dream. The dream was never so much to own a home for the sake of it. Rather, the real dream has always been to protect wealth from the evils of inflation, and the middle-class housing market generally served that purpose.
  
  
  
  Errr... How about "somewhere to live?" Ordinary people don't have the faintest notion about "protecting wealth from the evils of inflation." In fact of course there isn't even a concensus among economists as to what inflation actually is, unless one counts the consensus of the differnt schools to their own variant.

  DDG
  

  Published: May 17, 2007 11:22 PM

• David C

  For several decades people have been sent the message that it is rational to go into debt for a house. They have been given that message via constant inflation, special tax deductions, and ez credit and liquidity for anything house like, and all sorts of zoning laws and regulations that favor home owners. IMHO, the housing bubble is the ultimate proof that central banks can not allocate capital rationally. When you print up money, an investment in housing is a safe bet. But when you can't print up money, then loaning out money for a house is a foolish bet because a house doesn't create wealth and productivity like say an investment in a factory would. I see housing going down for several decades. First, the false messages to the market have created a vast oversupply of housing. Second, housing is over saturated in debt and most of that debt is long term. Third, the baby boom generation will soon start making a mass migration to smaller homes, country homes, retirement homes, and foreign homes. Fourth, when the US goes bankrupt (soon) one of their few options will be massive property sales which will drive down prices. Fifth, many third world economies are coming on-line, that will divert large amounts of funds that formerly went into housing. Sixth, inflation will drive up prices long before pay, making it harder for people maxed out on housing debts to pay them down.

  Published: May 17, 2007 11:32 PM

• olmedo

  great article.

  however, one point,

  
  you completely forgot to add Nixons closing of the "gold window" in 1971, what many think is the most significant financial event in our generation.

  
  and, as it is easy to appreciate in the time line, how lot of things started to "exploded" after that event.

  
  olmedo.

  Published: May 18, 2007 8:08 AM

• David White

  David C,

  On the other hand, "One way to defend yourself against depreciating money is by accepting long-term debt. Consider your mortgage." -- http://www.lewrockwell.com/north/north532.html

  I have, and believe more firmly than ever that anyone with the wherewithal to do so, and who is planning on living in his house for many years, should take out a long-term, low-fixed-rate second mortgage and buy precious metals. After all, with real inflation running in double digits (since M3 is the real inflation rate, and it’s been calculated at over 10%), you will be paying off the loan with depreciated dollars from day one, while your metals become increasingly more "precious."

  And it won't matter if you get "upside down" in a declining housing market, as the Fed will surely respond by keeping interest rates low and thus fueling inflation even more, to the benefit of both your mortgage payment and your metals. Then, when hyperinflation finally sets in, you will be paying down your mortgage with Monopoly money, while your metals skyrocket.

  Published: May 18, 2007 9:31 AM

• billwald

  Prior to WW2 people who worked in the city were content to live in the city, mostly renters. A home in the country, job in the city connected by a freeway, was a post WW2 (govt?) advertising invention that, along with the G.I. Bill and the Marshall Plan, prevented the historically normal post-war depression/inflation that normally occurred when the troops came home.

  Published: May 20, 2007 2:51 PM

• Walter D

  There is tremendous talk about subprime loans and people with less than perfect credit but the reality is that many of these loans were made to those wtih perfect credit.

  They fall into three categories: 1.Those people trying to "trade up" who couldn't afford a fixed payment and were offered pay option ARMS as a way to make the deal happen; 2. Those who bought rental properties and used these loans to keep payments low, and; 3. Those who pulled cash out to purchase toys and pay off credit cards and such.

  Many of these people now find themselves "upside down" on their mortgages as values have fallen with the glut of foreclosures on the market. They are unable to refi as their loans reset and payments rise up from the "teaser" rates they initially paid.

  The sad fact is that the bulk of these loans don't reset till November of 2007 so things are just in the beginning stages.

  Published: May 21, 2007 12:41 PM

• Buck Maxey

  I believe the NAR is predicting a 1.6% drop in prices...not 16%.
  

  Published: May 23, 2007 2:51 PM

• krohleder

  1. Real Estate investors buy, flip and rent driving up home prices.
  2. Banks get in on the fun and create new and exciting sub prime mortgages.
  3. The market cannot bare the inflated prices and collapses.
  4. The banks get bailout money which they promptly use to loan to Real Estate investors.
  5. Real Estate investors buy up bank foreclosure packages for 10 to 20 cents on the dollar.
  6. Market eventually recovers so go to step 1.
  

  Published: February 4, 2009 12:57 PM