Stuffing Money Under the Mattress and Consequences Thereof
Reuters reports:
“The national median home price rose to $220,000, up 15.8 percent from a year ago, the report showed. That was the largest annual increase in prices since July 1979.”
I may be crazy, but with what is going on in the housing market, the incessant bidding war among buyers that is driving the price of housing to astronomical levels, looks to me like the behavior of folks expecting the next deluge and their house is their ark.
Is there anyone that thinks the intrinsic value of housing is actually rising at 700% the rate of inflation? Does that make sense to anyone? And if it does not make sense, just what is going on here and what are the likely consequences of this behavior?
I have a conservative bent (duh!), but my suspicion is that we may see something that makes the dotbomb look like a Sunday school picnic. This has been going on way too long. Something has to give.
What happens when a bank that is carrying on the books a property against which it has a mortgage for $500,000 and suddenly the property is worth say $400,000? Multiply that by thousands of such properties and loans. What are the bank examiners going to do when they look at the books? Does ANYONE remember the S&L crisis? Does anyone remember what happened to a certain large bank in Chicago that had a bunch of commercial property on its books a values not exactly represented by reality? Does anyone what nearly happened by Citicorp when the bottom fell out of the market in Brazil? Does the name ENRON ring any bells?
Our banking system is far more centralized then it used to be. The failure of one large bank in Chicago nearly brought the whole system down a number of years ago (the Feds bailed them out). What would happen if the behemoth in Charlotte failed? Or the big boys on Wall Street? The Ponzie scheme MAY have reached such a level by now that even Uncle Sam could not bail them out. I shudder at the thought. I have visions of Weimar Germany and wheel barrels full of money that is worth nothing.
I am just raising the question, kind of like Denny Hastert did when he wondered, outloud, whether it might be wise to think twice before rebuilding New Orleans below sea level. He got some ugly response, as did I in my original post over at Another Rovian Conspiracy. A moonbat dropped out of the woodwork to say the question was “silly” and that to even ask it was dangerous.
Such is the “liberal” mind.
Anyway, it was just a thought.
September 27th, 2005 at 6:45 am
700%, I guess that means seven times 3 or 4 percent inflation, that is say, 21%-28%… Yeah, that is a hard increase but at the same time disposable incomes are up and consumer debt is down. Shwuh!?!? Check the REVISED stats from four or six months ago. The revisions take longer and longer these days. Of course the current rise will not continue indefinitely but it shouldn’t seem too unnatural that richer people desire yet more comfortable accomodations and pay for them. Housing is not an investment merely or even primarily. It is also consumption mitigated by the value of the asset. August home starts were up again as I understand. If you want to bet on a bursting bubble, feel free. The drinks will be on me, I think, in the mid-term, 5-10 years.
October 4th, 2005 at 9:50 pm
there will be a housing bubble but it will hit hardest for recent buyers in newly build inland subdivisions , not coast dwellers. Anyone taking out interest only loans and ARM’s in last few years, better pray that economy dosen’t tank. Look up in Vodkapundit:they have some posts regarding California RE bubble speculations.