Pop?
Is the great housing panic finally coming to an end? Sunday's LA Times had a front page article on the slowdown in real estate sales in San Diego (one of the hottest markets of the past few years). Today's New York Times had an opinion piece by Paul Krugman indicating the bubble was hissing. I liked this analogy. Obviously, things will not crash overnight - it will take some time as homes are not like stocks (cannot be traded immediately).
Whatever the case, it is nice to see these first signs of a cooling, popping, hissing, or whatever you want to call it. Or is it? I must say that I want this madness to end for selfish reasons. I am sitting on a significant amount of equity in my current home. Prices would have to drop more than 50% before I would even be close to what I paid for the place. So, I like to think that, if prices drop say 30%, I could actually go out and afford a new home and keep my condo as a rental property. However, what are the broader ramifications of the housing frenzy coming to an end?
I do not think it will be pretty. As I have noted in previous posts, the American consumer has been the iron horse of the US economy ever since the tech bubble imploded and 9/11 happened. The American consumer has been helped in their spending spree by rapid appreciation in the value of their homes. Homes have become the new ATMs. Want to take that vacation? Send the kid to a private school? Buy that Escalade? Just take a home equity loan on the house and live in the moment!
Of course, this behavior was further helped by the Banks and their innovative financing techniques - i.e., interest only and option pay loans - that fueled growth in the housing market. So, you had two sectors of the economy growing in leaps and bounds - banking (mortgage lending) and residential construction. Of course, I live in the true epicenter of both.
You can not walk two blocks in Orange County without running into a mortgage company or a home builder. So, what happens when these industries run into trouble? Of course, the impacts are nation-wide - not just limited to Orange County. However, I think the concentration of these industries in Orange County may result in the negative impact of a slowdown being even greater here.
With a slowdown, people would be losing their jobs and there would not be plenty of new jobs for them to take. What if I were to lose my job? I like to think I could find something quickly, however, if the market is flooded with other talented folks, it could cause me to go unemployed. I have a nice cushion saved for such an event (unlike many folks out there), but there are limits as to what I can sustain from an unemployment perspective.
Wow - what a dark outlook. I can only hope I am being way too pessimistic. I guess the good thing about bubbles is the fact that everyone rises with them. Some of us rise in a much more educated and conservative manner, however, when the bubble pops it impacts us all negatively. I do not remember being this scared in 2000......
Whatever the case, it is nice to see these first signs of a cooling, popping, hissing, or whatever you want to call it. Or is it? I must say that I want this madness to end for selfish reasons. I am sitting on a significant amount of equity in my current home. Prices would have to drop more than 50% before I would even be close to what I paid for the place. So, I like to think that, if prices drop say 30%, I could actually go out and afford a new home and keep my condo as a rental property. However, what are the broader ramifications of the housing frenzy coming to an end?
I do not think it will be pretty. As I have noted in previous posts, the American consumer has been the iron horse of the US economy ever since the tech bubble imploded and 9/11 happened. The American consumer has been helped in their spending spree by rapid appreciation in the value of their homes. Homes have become the new ATMs. Want to take that vacation? Send the kid to a private school? Buy that Escalade? Just take a home equity loan on the house and live in the moment!
Of course, this behavior was further helped by the Banks and their innovative financing techniques - i.e., interest only and option pay loans - that fueled growth in the housing market. So, you had two sectors of the economy growing in leaps and bounds - banking (mortgage lending) and residential construction. Of course, I live in the true epicenter of both.
You can not walk two blocks in Orange County without running into a mortgage company or a home builder. So, what happens when these industries run into trouble? Of course, the impacts are nation-wide - not just limited to Orange County. However, I think the concentration of these industries in Orange County may result in the negative impact of a slowdown being even greater here.
With a slowdown, people would be losing their jobs and there would not be plenty of new jobs for them to take. What if I were to lose my job? I like to think I could find something quickly, however, if the market is flooded with other talented folks, it could cause me to go unemployed. I have a nice cushion saved for such an event (unlike many folks out there), but there are limits as to what I can sustain from an unemployment perspective.
Wow - what a dark outlook. I can only hope I am being way too pessimistic. I guess the good thing about bubbles is the fact that everyone rises with them. Some of us rise in a much more educated and conservative manner, however, when the bubble pops it impacts us all negatively. I do not remember being this scared in 2000......
posted by The Random Gay Guy at 1:43 PM
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