Doomsday Approaches - The End of the Housing Bubble

[donsu]

http://www.counterpunch.com/whitney07272005.html


I sold my home three weeks ago anticipating what I believe will be "Economic Armageddon" in the United States. It wasn't an easy thing to do. My wife and I have lived in the same home for 25 years, raised both of our children there, and owned the property outright without any loans or mortgage. The house was paid for in "sweat-equity", that is, by wielding a shovel day-in and day-out in my one-man landscape business. I don't say that for sympathy, but to illustrate that we played by the rules, worked hard, paid our taxes, and took advantage of the American dream of home-ownership.

All that has changed.

-snip-

"Two out of every five" private sector jobs are now entirely dependent on an industry that is built on pure quicksand.

-snip-

So it is; and the $3 trillion dollars that evaporated on Greenspan's watch was in fact stolen from the American people while the Fed-chief concealed the crime behind the smokescreen of low-interest rates. In the final analysis, Greenspan will be seen as a greater traitor than Bush.
-------------------------------

[wli]

1. I've not bothered buying a home in the first place

But my plan was largely to flee the country, which is looking less feasible by the minute.

[tmooses]

2. Unfortunately, we have to pay for their incompetence, greed and

political paybacks. I don't know what it will take for people to realize how these crooks are stealing the country right from under their noses?

[GreenPartyVoter]

3. My dad says that bubble or no people are screwed

The buyers are, at any rate. If the prices are lower on the houses, the banks inflate their interest rates on the loans so that they still make a pile of money.

[Jamison]

4. Just curious...

Why did you decide to sell when you own the home and don't have a mortgage anymore? Usually in that situation it's best to just stay put and use the money you were using on the mortgage to sock away in savings.

What is your new living situation if I may ask? Did you downsize?

[tedoll78]

5. Damn.

And I wanted to buy a few rural (read: cheap) acres in Louisiana so I could build a home on them eventually when I return there. Damn.

Well, anyway.. you know what MY song-and-dance will be come election time? Blame the GOP.

[theboss]

6. Mike Whitney is quite the moron

Two points because I am in a hurry.

1. If you own your home free and clear, as he does, why sell before the bubble bursts? He is making a profit but if economic armageddon comes, his profit won't be safe due to inflation, stock collapse, etc and he will be stuck in a very crowded renters' market. Why would you obligate yourself to a monthly payment right before disaster strikes? Does he not realize that his home is not in danger?

2. 2 out of every 5 jobs are not connected to housing. He took the job growth of the last four years and applied it to the economy at large. Anyone with math skills this poor should stay away from writing about economics.

[Viking12]

8. Good points

If you anticipate a bubble burst, selling your house now would only make sense if you believe you would no longer be able to afford the mortgage payments and the resale of the house wouldn't cover the remainder of the mortgage.

[Extend a Hand]

10. A couple of reasons might make really good sense:

1. He is getting himself in a position to purchase land and a super-efficient home in an area with arable land and a good water supply in preparation for the coming energy crisis. (This might be and especially good idea if he is in a hyperinflated city market where he can cash out now and buy something better situated and have money left to put diversify his risks by buying tangible assets and stashing money in numbered offshore accounts.)

2. He wants to leave the country before the fascists give up the pre-text of democracy so that he can prepare a place for his extended family to escape. This would be especially helpful in the event of a draft.

[Chef]

12. Sell High

If he sold now while prices are high and before the crash, and if things get really bad, he can buy back in at reduced prices. Rentals should actually also go down because investors won't have to charge as much rent if they bought at fire sale prices. His approach makes sense if things do get bad. In regard to the 2 out of 5 jobs quote, I have to see the original article in The Economist to see if it is correct.

[AValdoux]

7. Mortgage ads on TV...

... are a disturbing sign. Increasing the debt owed on your house is being sold like a diet supplement. Transfering all your unsecured credit card debt to your house is not sound advice. When it is unsecured they can't take your house. The equity loans are based on inflated property values. When they correct themselves downward people are going to owe more than their house is worth. Here in Texas we are debating high property taxes and school funding. The taxes are high because the houses are over valued. The price of houses have tripled but wages have only gone up slightly. Interest only mortgages make this possible.

Why isn't this just common sense to most people?

AValdoux

[Wickerman]

9. Really dumb

While some of his points are well-taken, selling your paid for house is asinine.

If he sold say a 500k house and downsized to a 200k house and socked away the savings, cool. That is not what he said he did. He was afraid he was losing his equity. It was PAID for. He had a secure place to live no matter what. :eyes:

I believe this man should've stuck with landscaping, economics does not appear to be his forte.

[union_maid]

14. He seems to believe that housing will be a total buyers' market

He must believe it'll be that way for a long time. Some people believe that the bursting of the bubble is going to wreak economic havoc such as we haven't seen in a very long time. Otherwise selling wouldn't seem to make sense. It might, in some areas.

If I had flexibility I'd have sold, moved to a low rent area, rented for year or so and then bought at lower prices and had enough leftover to fund retirement. But I don't, so I'm staying where I am, with a mortgage that I believe will still allow us plenty of equity even if prices go down drastically. Funding retirement is still just a dream.

[Wickerman]

15. I'd rather have seen him flesh out that reasoning

I agree we are set for a real economic shakeup. I think it will coincide with the "discovery" of how corrupt Bush and his handlers are, and how bankrupt their foreign, domestic and economic policies truly have been. I am not certain it will create a decade long housing bust. We have a lot of people who need somewhere to live.

[CWebster]

11. Well we have to move. We have no choice.

No mortgage, no debt, but due to weather extremes created by global warming, and over development, we would be living in the River more often than not these days.

[dback]

13. We just sold our condo in San Jose to move to Hillsboro, OR

We bought the condo in '97 for $165. It has appreciated over $300 thou in less than 10 years, even with the "softening" market between 2000-2002. We just sold it for $476 thou.

We are leaving San Jose and moving to a larger house on the border of Hillsboro/Aloha, 10 miles west of Portland. The new house (which is about 400 square feet larger and has a cute little backyard) cost us $223 thou. (We are planning on putting down $100 thou, so our monthly mortgage will only be about $600--if we had to, we could work at Starbucks and make the monthly payments.)

We've been considering this move for years, but were previously constrained by owning our own small business, which we handed off in February. We had this weird feeling that we should sell ASAP, before everything melted down in the next few months. (And as it turned out, my mom just passed away, so now we'll only be 2-3 hours from the family.)

I am very worried about friends who don't own property, but I also worry about those who were using their home as their vehicle to get loans, credit cards, etc. and are now thousands of dollars in debt.