The Housing Bubble, or Why I Will Never Be Able To Afford a Home
03/02/05 20:36 Filed in: Housing
Insanity
I have been beating the
housing-bubble drum for, ahem, upwards of four years
now. I'm a strong believer in "common sense"
economics: I didn't buy the internet hype in the late
90's (although I had a few "maybe I'm wrong"
moments), and similarly I don't believe the "its a
different housing market" arguments now. At some
level, housing prices must be tied to incomes.
Clearly that relationship has become unhinged. It's
my opinion that the reason that it has become
unhinged because of historically low interest rates
and the fact that people have moved into increasingly
leveraged mortgages. Also lurking in the background
is my favorite quasi-federal bugaboo: Fannie Mae.
Mortgage backed securities have leveraged the
perceived stability of housing mortgages into a
lucrative securities market which seems Federally
backed. This market has the unfortunate effect of
reducing or outright eliminating incentives to
lenders to find qualified borrowers: if you are just
going to sell the mortgage off as a security, who
cares?
There is a secondary issue as well: at a fundamental economic level, I believe that economic progress is made when people produce things that other people desire. (Of course I think this. I'm an engineer.) Money generated from housing appreciation doesn't really contribute to the overall economy. Rather it works as an inflationary wealth transfer from non-home owners to home owners. In the long run (and in the long run my children are very alive, Mr. Keynes), it is the production of goods that creates a wealthy society, not the trading of those goods.
At this point in the game, regardless of if I'm right (Ed: seems unlikely) or wrong, it has gotten to the point that my financial calculations show a clear financial advantage to renting, on the order of tens of thousands of dollars a year, before one takes into account the convenience of not having to care for a property. Lunacy. The only way to win this game is... not to play.
UPDATE: Well, someone agrees with me.
There is a secondary issue as well: at a fundamental economic level, I believe that economic progress is made when people produce things that other people desire. (Of course I think this. I'm an engineer.) Money generated from housing appreciation doesn't really contribute to the overall economy. Rather it works as an inflationary wealth transfer from non-home owners to home owners. In the long run (and in the long run my children are very alive, Mr. Keynes), it is the production of goods that creates a wealthy society, not the trading of those goods.
At this point in the game, regardless of if I'm right (Ed: seems unlikely) or wrong, it has gotten to the point that my financial calculations show a clear financial advantage to renting, on the order of tens of thousands of dollars a year, before one takes into account the convenience of not having to care for a property. Lunacy. The only way to win this game is... not to play.
UPDATE: Well, someone agrees with me.
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