More housing madness
For the several months now I’ve been following the coverage of several housing related blogs and informational websites that present a very compelling list of arguments why it might be a very bad idea to buy real estate in the current market conditions. Although many of them are focusing on the San Francisco bay area, I think the rationale can be applied to other metro areas that have seen exponential rises in housing prices since 2000. I think the authors have to have laid out very well reasoned yet painfully simple economic analysis which I have yet to see sufficient evidence on the other side to present a compelling case. One author addresses just about every sales pitch that has been thrown around by real estate agents and mortgage brokers about why everyone should be buying a house, and its always a good time to buy.
Anyone who has taken a high school class in economics, or even glanced at an Econ 101 book should be able to understand why many of the pro-housing advocates in this current market make no sense at all in their sales pitches. Unfortunately emotion and fear of market exclusion is a very effective tool at getting people to stop using their heads and make very poor financial decisions that could haunt them for the rest of their lives. In many ways I liken the current state of the real estate industry a lot like the diamond industry, the luxury sports car industry, selling overpriced, over-marketed consumer goods that are suck up a substantial amount of the average person’s disposable income, guaranteed to depreciate in value, and ultimately amount to nothing more than another meaningless status symbol when it really should be something more practical: a roof over your head and land to maintain and maybe pass on to your heirs one day.
The subprime stock implosion and mainstream media coverage of toxic/exotic loans that sound a lot like credit cards with their low introductory rates that double or quadruple after a couple of years is all troubling. Especially since a lot of these loans were apparently given to all being given to people who normally could not qualify for a standard, fixed rate loan. They were banking on the fact that their houses would appreciate at 25%, 50% a year or something, and they would eventually sell it for a profit, or refinance the mortgage and take more cash out on the equity. Unfortunately now that the real estate market is tanking, it looks like it’ll just get worse as more and more mortgages reset to the higher rates, and more foreclosures go through. In the next couple of years there might be a lot of broke homeless people with bad credit finding it hard to find someplace to even rent.
I think that everyone who is thinking about buying a house or condo should at least read and digest the wealth of information available online before taking the debt plunge. The housing market is so out of whack right now that it could be financially fatal to buy in the current inflated market conditions.
Housing Blog Linkes:
The Bubble Meter
Housing Panic
Marin Bubble
Hawaii Real Estate bubble
DC housing blues