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  • From: Clansgian AT wmconnect.com
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Informal Survey of Housing Bubble
  • Date: Fri, 21 Jul 2006 20:10:16 EDT




> but I would bet on it that Gene or James
> might have an intelligent answer.
>

And I bet we'd give different answers too.

THey would be different in two ways:

Gene's answer would be better because he does that for a living. And
Gene's answer would be worse because he does that for a living.


First, the housing bubble bursting doesn't necessarily mean that housing
prices go down, or that they go down very much. Instead it might mean that
they
stay pretty much what they are but sells drop off to very low levels. New
housing might be ruled by suppy and demand, planned and future housing
certainly.
But existing housing and investment housing aren't strictly ruled by supply
and demand. If sales go down, some people will just hang onto their property
investments thus creating a situation where sales are few but prices remain
high.

The problem for some people in the burst isn't that housing values will drop,
but rather that they will fail to continue rising. Many a poor dope has
bought real estate with questionable financing based on the idea that it
doesn't
matter how much it costs to float the loan, the price of the house is going
up
so fast he's covered no matter what. In a burst or even just a vigorous
slow-down, the interest and fees on the loan keep piling up but the house
stays the
same value.

Worse still are the people who were told by smarmy lenders that they had
increased equity in their house and why not "use" some of that equity. It's
the
foolishness that's driven much of the economy these past few years, the
illusion that one's house, because it was appraised for a lot more money than
you
paid for it, was oozing and growing money from all corners! It is amazing
at
the number of people who never grasped the idea that you can't live in your
house and spend it too.

But in the case you describe, Bev, I'd think there's not much to worry about.
With only 11 years to go on a mortgage and no plans to sell unless you have
to, a housing bubble will not affect you at all. If housing is hight when
you'd have to sell, you will sell high and buy some other place to live high.

If it's low, you will sell and buy low. If you had a zero interest loan for
120% of the peak value of your home during the bubble, you'd be in trouble.
But you don't.

We own our place outright and so a bubble, lack thereof, bursting, or lack
thereof doesn't affect us. You aren't in all that much a different
circumstance.





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