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[Clansgian AT wmconnect.com]

> I can't believe that prices will go down in my area any time soon.  

...... If they're as wealthy as anticipated in 2010 (when the 

> first boomer retires, theoretically), then I expect that this place 
> would soon sell for a million bucks (were I so inclined).
> 

Bill,  if we simply go with the rather simplistic "houses are still selling, 
houses have always sold" then it would appear that there is not housing 
bubble.  And if that's as fr as people look, I can see with the whole topic 
would be 
 boring.

But as Rafiki says to Simba in Disney's 'Lion King' ...."Look haaaaarder."

You say that there are soon to retire ex-hippies and yuppies there and that 
they are wealthy enough to keep pushing land and housing prices up.  Not on 
SS, 
says you, but on privately funded savings, investmets,. pensions,. and 
retirement plans.  Where's that money invested, the stock market?  Not so 
much of 
it.  The lion's share now of days is in Mortgage Based Securities (MBS).  

Check out this article.  Don't take it all as gospel but the gist of it is 
correct:

http://www.larouchepub.com/other/2002/2924fannie_mae.html

"Between 1995 and 2001, banking institutions (including savings and loan 
institutions) lent $2.25 trillion in new housing loans to prospective 
home-buyers. 
But during the same interval, banking institutions lent only $1.29 trillion 
in loans of all types, including to commerce and industry, to consumers (for 
car purchases, etc.), and for housing. This seems impossible. How could banks 
lend more for housing, at $2.25 trillion, than they lend to the entire 
economy, 
at $1.29 trillion, when the latter includes housing as a sub-sector? The 
answer: the great Fannie Mae and Freddie Mac lending machine." 
    
Housing is booming, and has been for a number of years, because of easy 
access to loans.  Banks lend what assets they have to lend and then they can 
do one 
of two things,  !) Keep the loan and collect the priniciple and interest or 
2) Sell the loan.   Most loand get sold and the above mentioned mortgage 
outfits buy the bulk of them.  To raise funds to buy the loans, they issue 
bonds.   
The bonds have to be bought by someone and so most are bought by mutual funds 
and pension funds.

So here is your ex-hippie about to retire and they see that thay have this 
fat retirement money coming to them.  Why is it coming to them?  Mainly 
because 
it has been lent out as mortgage.  So the hippies will keep the housing 
prices 
high by continuing to buy houses with money derived from the fact that houses 
are high.  Do you see that this is circular thinking.  The hippie housebuyers 
are trying to lift themselves by their own bootstraps.

The current housing "boom" has nothing much to do with scarcity of land, 
increasing population, etc.  It has to do with twenty years of more and more 
foolish lending practices.  

Last year about half of the homes sold to first time home buyers were sold 
with no down payment.  Traditional wisdom was that it was unwise to lend 
money 
for a house if the installments were more than a quarater of the person's 
income, now 50% to 80% of income is common.   A house was considered 
overpriced if 
its sale price was 150 times the monthly rent, now many houses are priced at 
1000 times the typical monthly rent.  More than half of the loans issued now 
of 
days have very low initial rates which increase greatly over time.

While there are stark differences between real estate and the stock market, 
there are some similarities, especially in the speculative use of real 
estate.  
Borrowing to buy something today you don't have the money to pay for hoping 
that it grows enough in value in the future to cover your indebtedness is 
what 
brought about the '29 stock market crash.  That is exactly the same thing 
when 
somone buys a house with no down payment and low initial payments that don't 
even cover the interest (which is added to the prinicpal every month).  The 
hope is that the real estate will increase in value so rapidly that the the 
sale 
value at some future date will be greater than the endebtedness.  Or in the 
case of people really just wanting a place to live, that times will be so 
good 
that they will be earning a lot more money in the future and be able to pay 
the highter installments that will be coming their way.  If this turns out 
not 
to be true:  if values don't continue to increase rapidly and if wages and 
salaries don't go up rapidly or if there is a recession or high unemployment 
for 
any reason, those loans bought up by the mortgage companies become no good, 
which means that the bonds issued on them are no good, which means the 
pensions 
and retirements based on those bonds are no good, which means the hippies 
aren't going to be trying to buy that land after all ...... and the price 
doesn't 
keep going up.