Tuesday, August 29, 2006

Housing Boom -or- Bust?

is a graph that puts the current housing boom into a historical perspective.

That is a LONG way to fall.

I said before that the crazy lending practices such as interest only loans and the like are going to cause some serious issues with home values in the not too distant future. The signs of it happening have already started. The last new housing report showed that new purchases fell something like 6%. That is a large drop. The ramifications of such a drop are that building companies now have a large surplus of houses, which means they won't be building new ones until they can move the old ones, which means layoff's in the previously booming construction industry, which leads to people not being able to make their interest-only payments on their houses, which begets forclosures, which then starts to drop the housing values because they are over priced and require an interest-only loan for most to afford. As that happens the fed cranks up interest rates to hold off inflation which cranks up the adjustable rate on those interest only loans pricing more people out of their affordable range thus causing more forclosers. BOOM, crash.

It'll happen, the only questions are when, how fast, and how bad. It'll be ugly regardless. So hold onto that equity in your house so you can absorb the fall. And if at all possible lock that adjustable rate mortgage into a fixed rate as soon as humanely possible.

Exciting times!

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