Housing Bubble
Regular readers will recall that I speculate periodically about whether there is a housing bubble, be it regionally or generally. Via Glenn, the WSJ has an article today that discusses the possibility, which remains unclear but increasingly likely.
What I look at is the fact that the rent I pay is not unusual, but I can barely afford it. Extrapolate from that to a mortgage likely being around double what the rent is, and you’ve got trouble. Put another way, I wonder at the sustainability of an up and up and up and up housing market in light of what real people earn and can afford, in places where incomes aren’t wildly inflated to match, or become unsynchronized.
If we’re lucky, the bubble, if it is one, will have burst, be it a hard or soft landing, by the time we can be in the market. Or I’ll have written a wildly popular book or two and have money from that. Hey, it could happen.
At least we shouldn’t have to worry about not getting the benefit of tax deductions because we don’t itemize. With how much a mortgage will be when the time comes, I will have to make enough, and the interest and taxes will be so insane, that itemizing will be a no brainer.
The last time there was a housing bubble (late 1987) it burst when the economy went into recession. People had $200,000 mortgages on homes that were worth maybe $150,000, tops. Many ended up handing the bank the keys and telling ‘em “Good luck!” and then walking away. Condos took a real beating with their value plummeting by as much as 70% (I am personally aware of condos in the Derry,NH area that had sold originally for $100,000 going for as little as $25,000 after the real estate boom went bust).
The last ‘bust’ took a number of banks with it because they had given mortgages to too many folks who barely qualified. When the bust occured, they ended up holding millions of dollars worth of non-performing mortgages. Five major banks in New Hampshire failed because of the real estate bust. (Some of the failure has to be laid at the feet of the state legislature for that because they had changed the laws regulating interstate banking but hadn’t included enough safeguards...but that’s a topic for lengthy blog post.)
I know Deb (my Deb) has been hemming and hawing about selling her place and looking for a new place in the Lakes Region, but I think she sees the possibilities of the housing bubble bursting and is worried she may wait too long to sell and not reap the benefits of her investment. The ideal plan is to sell before the bust and buy afterwards. As the saying goes, timing is everything.....
Posted by DCE on 01/19 at 08:42 AM
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