for DF : Pricking the Bubble and a worldwide depression

[movie zombie]

Pricking The Bubble
J. Bradford DeLong
August 26, 2005
J. Bradford DeLong, professor of economics at the University of California at Berkeley, was assistant U.S. treasury secretary during the Clinton administration.



Copyright Project Syndicate, 2005

 

[Dancing Fire]

Date: 8/27/2005 9:27:28 PM
Author:movie zombie



Pricking The Bubble
J. Bradford DeLong
August 26, 2005
J. Bradford DeLong, professor of economics at the University of California at Berkeley, was assistant U.S. treasury secretary during the Clinton administration.

On top of these two powerful fundamental factors sits a bubble. The bubble is filled by people with money who are buying extra houses because they think home prices will continue to rise, and by people without money who are buying $400,000 houses in less-fashionable neighborhoods with zero percent down and floating interest rates.

yeap....that is the main reason why we have this bubble.

Both groups’ demand is inherently ephemeral. When the first group discovers that housing prices don’t always go up, they will try to dump their properties. And when the second group discovers that interest rates don’t always stay low, many of them will be unable to meet their higher mortgage payments and will likewise try to dump their properties.

when we get to this stage,nobody wants to buy their over price properties.

If there is a sharp spike in interest rates—caused either by capital—we will see how good the Federal Reserve really is. If interest rates rise too far, then the collapse in housing values will lead to large-scale foreclosures and a collapse in consumption spending as well.

that will happen within the next 2 yrs.

Copyright Project Syndicate, 2005

 

[movie zombie]

DF, don''t know why you couldn''t open the link that i posted in the other thread re 40- year loans. thought you''d appreciate being able to read it for yourself.

peace, movie zombie

 

[Dancing Fire]

Date: 8/28/2005 12:59:33 AM
Author: movie zombie
DF, don''t know why you couldn''t open the link that i posted in the other thread re 40- year loans. thought you''d appreciate being able to read it for yourself.

peace, movie zombie

MZ
i did read it.i think is a big joke.a young couple buys a home at the age of 30 and still be paying a mortgage when they''re collecting SS.

 

[Kamuelamom]

Date: 8/28/2005 2:56:56 AM
Author: Dancing Fire
i did read it.i think is a big joke.a young couple buys a home at the age of 30 and still be paying a mortgage when they're collecting SS.

DF, I'm afraid you are talking about me and I don't even have a 40 yr!

Since we just completed building our home we have a brand new 30 yr mort so I'm afraid that puts me right where you are referring to! What is a girl to do???????????????

On basically one income it's difficult to put everything in the baskets where they belong, additional principal payments are in order, I know, but right now it's just so difficult for us. At some point though, I know we need to commit to doing that, at least if we cut 5 yrs off I'd be happy. But we're just not in the position to do that right now. I'm sure if we stretch ourselves we could, but I kinda like building up a little cash reserve for the just-incase times in life. Ya never know, ya know?

 

[Dancing Fire]

Date: 8/28/2005 3:09:08 AM
Author: Kamuelamom

Date: 8/28/2005 2:56:56 AM
Author: Dancing Fire
i did read it.i think is a big joke.a young couple buys a home at the age of 30 and still be paying a mortgage when they''re collecting SS.

DF, I''m afraid you are talking about me and I don''t even have a 40 yr!

Since we just completed building our home we have a brand new 30 yr mort so I''m afraid that puts me right where you are referring to! What is a girl to do???????????????

On basically one income it''s difficult to put everything in the baskets where they belong, additional principal payments are in order, I know, but right now it''s just so difficult for us. At some point though, I know we need to commit to doing that, at least if we cut 5 yrs off I''d be happy. But we''re just not in the position to do that right now. I''m sure if we stretch ourselves we could, but I kinda like building up a little cash reserve for the just-incase times in life. Ya never know, ya know?

K-mom

yep, any additional payment towards the principal sure would help in cutting a few yrs off. when is the house warming party?.

 

[AGBF]

This article (and the attendant discussion) was very interesting. My husband works in finance. Until a year ago he never had anything whatsoever to do with mortgages, but now he does. I sent him a link to this thread.

My husband has believed since business school nearly 30 years ago, and continues to believe, that it is good always to have a mortgage. I am one of the people who would like to own her home outright. Our real estate lawyer in Connecticut told us that some people fall into one group and others into the other, but implied that the difference is just one in emotional attitude. (In our case the problem is that within the same couple we have a split over which way to go!!!)

If one borrows and invests at the same time, a longterm mortgage is not an inherently bad thing. (Even though I wish we didn''t have one!!!)

I am fearful about the economy as a whole, however!

Deborah, weighing in!

 

[icekid]

hmm, very interesting read, MZ. If something is going to give, I hope it does within the next few years before we buy a house!

 

[fire&ice]

As relative - the housing market in the US is not the hottest in the world. I believe we are like 10th.

 

[fire&ice]

AGBF - I think your point is valid. I do think it''s emotional. For us in our main earing income years, having a mortgage makes sense. Emotionally, I need one. That said, when we slow down looking closer towards 60, I (currently) feel differently. I may not at the point. Only time will tell.

I think to some extent we are a product of our experience. My parents owned their home outright approaching 60''s. Funny, now in their 80''s they don''t want to own anything.

 

[movie zombie]

i think it is also good to have a mortgage for tax purposes based on what income bracket you are in and what kind of deductions you may or may not have been taking. a friend of mine was told not to pay off his mortgage for tax reasons and he held off until there were only a few years left before he did pay it off: he wasn''t getting any more tax advantage because so much was going to the principal rather than interest. he was lucky: he was paying $500/month EXTRA to the principal from day one....shaved years off his loan.

if there is a down turn in the market, there will be some bargains to be had. banks won''t be prepared to take care of all the REO [real estate owned] in their inventory. also, people will try and sell before walking away from their loans. happened during the depression and will happen again. the problem is that if one is so cash strapped s/he can''t make additional savings and/or investments. it is entirely possible that one could be better off in some circumstances renting and making investsments. i''ve know people like that, too.

as in all things, there is no one model right for each and every person. we each make our own decisions and, hopefully, are fully informed when we do so. i think these discussions help to keep us on our toes. as in all things, though, let the buyer be ware.

peace, movie zombie

 

[Dancing Fire]

there''s nothing good about a high price housing market except for the elderly couple who sells their home, put the money into CD''s and never buy a house again.

 

[AGBF]

I saw this today. I thought it was interesting, but didn't know exactly where to post a link to it. Since it's about housing, and whether Hurricane Katrina may actually extend the housing boom, I decided to put it here.

An excerpt from the article and a link to it are below.

"As refugees from New Orleans poured into Baton Rouge last week, along with workers who expect to help with the rebuilding effort along the Gulf Coast, the local housing market, which up until now has plodded along at a stable pace, suddenly experienced the kind of frenzy that has been associated with New York, Miami or Silicon Valley in the last few years.

'I've never seen anything like this before,' said Robert Cook, a real estate agent with Re/Max Elite in Denham Springs, La., a suburb of Baton Rouge. 'It's sort of scary.'

Mr. Cook said he represented five buyers in two days last week who made offers on homes, and fielded hundreds of calls and e-mail messages from others. On Friday, he said, he was with a couple from Picayune, Miss., who made offers on several houses only to discover they had already been sold."

Housing Boom May Continue After Storm, Experts Say

Deborah

 

[perry]

There are always local husing booms in areas surrunding disasters - right after the disaster.

However, from a national scale; I suspect the the real long term effect of Katrina might just be to pop the bubble. Rising energy bills will force a reprioitization. This is not just gas; but the future effects on heating fuel and even electricity in many areas. People who borrowed on the edge of their ability to make the payments will not be able to make those payments. How many defaults will it take to pop the bubble....

Perry

 

[Momoftwo]

Dont' sweat it, there are 60 year olds getting 30 year mortgages. What does it really matter? You'll have whatever equity you have and it you're smart, you've invested elsewhere for your retirement. People tend to buy homes to live in, not make money on. And according to several money experts, there is no bubble. There may be adjustments, just as in any market. You cannot compare the real estate market to the stock market, it's like apples and oranges.