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"Chuck Norris doesn't read books; he stares them down until he gets the information he wants out of them."
- ChuckNorrisFactsdotcom

Sunday, June 05, 2005
Bubble or no bubble? It's pretty damned obvious that the growth of the past few years is not a sustainable rate. Great zeus! One third of homes sold in 2004 were second homes or investment properties. Half of 2004 mortgages are adjustable rate. Has everyone lost their minds?

There's that old saying 'as the economy of California goes, so goes the nation.' If banks were to practice anything like responsible lending (fixed interest and a 10-20% down payment,) a big portion of the population could never own a home with prices what they are today. We do have record home-ownership rates, but how many people feel trapped by this crazy market? I'm convinced by the speculation going on that this can only end in tears. What percentage of speculative owners have to get pinched in order to produce a total market glut and how severe? What will happen if just 10% of homeowners find themselves with underwater mortgages? Consider in light of all the 'refinance and cash out your equity' activity.

However, the silver lining may be that a massive economic downturn would translate into lower oil consumption rates, which might buy us more time on the viable alternatives research before the production/consumption numbers tip over. Several systems and economies are dangerously out of balance. A slow deflation of the US housing market may very well be the gentlest way for the Chinese economy to correct itself. Ditto the trade deficit. Ditto debt of all flavors. Don't get me wrong, this is depression kinda correction, but we may be coming in for a softer landing than we otherwise might have been.

On the other hand, I've been watching and wondering how much higher prices could possibly climb for over 4 years. People have been explaining why this was unsustainable for years, only now there's another few years of wild inflation to be corrected for. A lot of people are going to see a large portion of their paper wealth evaporate. (Sound familiar? Expect to hear Fannie Mae and Freddie Mac referred to in the same breath with Enron and Global Crossing.) In 2010-2012 the first wave of the Boomers starts to retire. The change in spending patterns for that demographic bulge alone might be enough to tip us into a depression. Oh yeah, and the Maya calendar ends in 2012.

Buckle up guys, it's the 1930's all over again. When it goes it's gonna go fast. I wish I could remember the details of an anecdote about a man who sold all his stocks right before the '29 crash. Someone asked him how he knew to do that and he replied that it was overhearing newspaper boys and shoeshine boys exchanging stock tips. Or in other words, when the suckers show up, it's time to leave. I can't imagine why anyone would choose to buy real estate in a market full of adjustable rate mortgages and 110% loans. A fool and his money... Get ready to recognize them as such, now. In a few years they'll be the ones muttering in their beards about the evil rich who got that way by cheating rather than by simply adhering to the buy low sell high strategy. The rich get rich at the expense of the stupid greedy and uninformed. As it ever was.

posted by Rachel 6/05/2005
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