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  • From: Clansgian AT wmconnect.com
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Housing loan remarks
  • Date: Thu, 10 Nov 2005 09:13:17 EST

Don,

That's a good blog linked to some very good articles.

But by all means don't stop reading at the 'loans' post. Just below that
are several over very interesting observations such as the fact that insiders
in
the housing construction and financing industry are selling off their own
stock at ten times the rate as other industries, the blogger implies it's
because
they know something,

I've been doing some reading about what people, especially writers for the
Wall Street Journal, were saying at the beginning of September of 1929. The
parallels are stark. The most common remark pointed to now as being the
epitome
of foolishness was the remark in the the late 20's that it just make good
sense to borrow someone else's money when you were making more with it than
you
were paying in interest. Things don't change much, do they?

One interesting analysis said that an overlooked factor of 1929 was that in
the years after the war there was an unprecidented surge in the production of
consumer goods: radios, refrigerators, cars, etc. and the use of consumer
credit to buy them. The rise in sales was so sudden and strong, the economy
geared up as if the rise would continue forever. Then, opines this
particular
analyst, people simply felt they had enough 'stuff' and didn't want to buy
any
more. Because the scheme of borrowing money you intended to pay back out of
your ever expanding equity was based on a continually rising equity, the
scheme
collapsed. The housing market parallels this more closely than many admit
(dare admit to themselves). As the blogger Don pointed out shows, housing
construction has increased at a far, far greater pace than the formation of
new
households.

As the a-bublists are quick to point out, housing is different, isn't it.
People have to have a place to live. Yes. But the opposite is also ture, a
house has to have a person to live in it for it to have any value. If you
are
building houses faster than new families are being created, the market will
soon
or late have to say, "Hold, enough!"

And when that happens, the equity in the house ceases to rise. But the
interest on the loan continues unabated.




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