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  • From: "clanSkeen" <sgian AT planetc.com>
  • To: <homestead AT lists.ibiblio.org>
  • Subject: Re: [Homestead] Housing bubble
  • Date: Wed, 8 Dec 2004 21:18:48 -0500

But, Gene, what about the statistic that we are building one house for every rise in the adult population of one person (from the article)? If that is true, it is certainly an oversupply of housing and hence a bubble.

Around here there is virtually NO construction of modest homes. All the new construction is for very large and expensive homes. Someone visited an expensive housing project just south of Knoxville (120 miles from here) and when they had toured a couple dozen homes, most of them occupied and for sale, they commented on how the poor foolish people had bought such a large house they could not afford to furnish it. They had seen house after house with the kitchen equipped and one small bedroom and that's all. The rest of the rambling McMansion was empty. Their perception was corrected by one of the owners. The people living in the houses were perfectly capable of furnishing them if they chose, and many of them had paid cash for the houses. They were living a lifestyle where they were mostly at work, bought an expensive house in a rising market, and if they lived in it 18 months, they could sell it without paying captial gains. Homes have replaced the stockmarket for many as an arena of speculation.

That along with another article I read:

http://story.news.yahoo.com/news?tmpl=story&ncid=1204&e=4&u=/nm/20041208/bs_nm/financial_nasd_homeequity_dc&sid=95616122

which tells how values of homes are inflated because people are borrowing the equity and playing the stock market with it, together they emphasize that homes are not just being assessed for their value as housing, but there's speculation component to it as well.

You may be right, time will tell. But the logic that things have gone a certain way for a long time and so needs must continue that same way does not hold. You can always get another beer out of the biggest barrel, right until the time you can't get any more beer from it. There was just that sort of logic afoot in the mid 90's during the rise of the tech stocks. The thinking was that technology was here to stay, it would only increase, so how could money be safer than to invest it in technology? And they were right, techonoly is still with us, even more than ever, and yet poeple lost their shirts on that logic. Now they are losing their jobs over it.

As I said, you may be right, but it might be whistling past the graveyard.


James





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