6.29.2005

Here's an Upbeat Assessment of the Real Estate Boom

Click on the title of this post and read what this guys says.

Essentially, it is "yes, there is a housing bubble, but that bubble gives people jobs and gets money into the local economy. And now that other types of employment are picking up steam, couldn't this just be a nice, safe bridge while most industries other than construction are in the toilet?"

Interesting arguement, but seems a little risky to me. What about the down side to NOT SAVING A DAMN THING? To risking more debt on your HOME than it is WORTH? How about that? How about needing to borrow cash from China and Africa because we can't pay for our own government? Doesn't that leave us a little vulnerable?

The shortcoming in the analysis with this guy is that even with increased US employment in the housing and building industries, we are living beyond our means. The home equity lottery that is funding these jobs is going to dry up. He says that other industries will pick up the slack and hire more Americans. The question is: how is industry going to come up with that kind of money? It is a huge amount of money. How are hurting industries suddenly going to be able to hire as many people as are displaced when home equity spending goes down? They won't.

On top of that, happy homeowners are now going to have to live within their means, the thought of which is terrifying to them, and are expected to SAVE on top of that?

It doesn't add up.

There's no doubt that the pain of the 2000 recession was numbed by the real estate market. And the crazy spending that came out of it. But what will be the cost of delaying the pain? Don't tell me there isn't one. There is.

5 comments:

The Lazy Iguana said...

It adds up to me.

When the bubble pops, too many Americans might find themselvs with negative equity in their homes.

Then home owners will either face forclosure, or they will be stuck paying off a mortgage where their equity is instantly transfered to the bank.

If they forclose, the banks get their property to resell, along with all the money the homeowner already paid.

If they keep paying the house off, the homeowner is in effect giving a whole lot of equity to the banks.

Also, if the "experts" dare to admit that there is a bubble, and they explain what can happen to people when that bubble pops - it will speed up the process.

jevanking™ said...

It's interesting that you posted on this topic because I was thinking about this the other day.

Consumer debt is at an all time high. It has risen sharply along with GDP which means that no one is saving. The bubble will burst. I think the STOCK market is overvalued but other markets are where they should be in exception of Crude Oil. I will repeat my point I think I made either on your site or Iguana's. Even if I think the stock market is overvalued, I still think private accounts for Soc. Sec. is the best idea we have with most of that money going into risk free investments. Just a little aside to my comment.

Econo-Girl said...

Yeah, a part of me thinks that sometimes I am a bit too gloomy, but then I look at the numbers.

I just want to know NOW what it is I should be doing to soften the blow.

Reducing credit card debt
Save
Live below our means

That's all I can think of. And investing in gold and oil.

Econo-Girl

Econo-Girl said...
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run75441 said...

Econo:

The arguement is not so much the housing bubble as much as the deficit bubble. The whole of the US Gov right now is setup on the premise of deficit spending and the real joke is from a "Unified Budget" which incorporates the, you got it, the "Social Security Withholding Tax Surpluses." The very same increase that Greenspin campaigned for in 83 to set aside in a TF is the say one he campaigned to give back in tax breaks in 01. The TF has always been apart of the General Funds with Unified Budgeting coming around in the sixties and the TF never amounting to much until SS Withholding taxes were increased. It is unfortuate this admin chooses to continue to hide behind its use.

The cure; do away with the unified budget, place the SS suplus Withholding taxes into Treasuries thereby steming the bloodletting now occurring, get ready for a tax increase as a result of non-unified budgeting or mega federal program cuts.

Has anyone discussed clawbacks with regard to Proposal 2 of the Pres's SS plan? Hint: Its a loan to you and you don't get to keep it.