As I noted last week, the housing bubble has popped in part due to rising gas prices. Wall Street Journal columnist Holman W. Jenkins, Jr., makes a similar point in this op-ed:
Look at a very instructive map found on the Web site of RealtyTrac.com. Not only are the big foreclosure hotspots concentrated in just three or four parts of the country – but a disproportionate share of foreclosures are concentrated in a single, nearly contiguous blob reaching from Sacramento to the environs of Las Vegas and Phoenix.
Another hotspot is southern Florida, and along Interstates 25 and 70 in Colorado.
Many of these homebuyers are underwater not just because they bought more house than their incomes could support, and not just because prices are falling. They were also betting on commute patterns and demographic expectations that are proving invalid.
These were bets on location, location, location – premised on the idea that people would be willing to live hours from anywhere for a chance to own a single-family home they could actually afford. No federally sponsored haircut can put these housing bets back in the money, or stop these houses from coming back on the market at distress prices [Holman W. Jenkins, Jr., "Why a Housing Bailout Won't Help," Wall Street Journal, 2008.05.21, p. A17].
Jenkins goes on to contend that the housing collapse isn't triggering a depression. Banks and investors are figuring out the dimensions of the subprime mortgage beast, says Jenkins, getting over their uncertainty, and realizing they can weather the correction.
An idle financial hypothetical for your morning: Suppose Americans had overinvested in another big ticket item that suddenly lost value and became unaffordable... like, oh, say, gas-guzzling SUVs. Would there be calls for Congress to hand out money to SUV owners to ease the pain of their costly investment? I should hope not... and I hope Congress will hold back from any further intervention in the housing market. Let the correction happen, let the banks and buyers learn their lessons... and let's get back to the idea that a house is a home, a place to live, not simply a material investment.
A while back KELO did a story about the subprime rate mortgage crisis and what people are doing to over come it. One lady said she had a mortgage through CountryWide, but because CountryWide was filing bankruptcy, she wasn't able to refinance. Ok, I have a mortgage through CountryWide and I get nonstop notices and solicitations about refinancing and lowering our interest rate. We talked to a mortgage specialist and they offered us a rate in the low 5's fixed.
ReplyDeleteYes, part of the problem are the oil prices and people are taking money away from other things and putting it in the gas tank. The REAL problem is that people bought homes that they just couldn't afford in the first place and never planned for that ARM to kick in. Things happen (and I am a poster child for that). Losing a home is a scary thing, but I don't think the government should dig in its already debt filled pockets to bail people out because they failed to plan.
Yes, housing prices will fall, but like everything else, it goes in cycles. Right now they are low, but give it a few years. Once gas prices stablize (my family and I pray for it every day), the ARMS come due and are settled, things will start to swing back and those people that are fortunate enough to take advantage of the housing slump will be able to beneifit in the long run.
I concur with everything that has been said here.
ReplyDeleteI am fortunate, indeed. I had a mortage through Countrywide. As soon as I learned about their troubles, I began to browse the Web to get a better idea of what was going on.
My ultimate decision was to suck in my gut, drill a couple of new holes in my belt (on the tight end), cut off the drooping end so it didn't look too stupid when my shirt is tucked in -- and pay the bloody bozos off.
Now they are out of my life, and I do not for one nanosecond regret getting rid of them.
But then, I bought a modest old house that was well within my means.
I don't think too much about how I can profit from the housing crisis, although every wave can be ridden, and those with savvy and the right disposition can no doubt get the better of this correction.
For my part, I am too busy making sure the equations are right in my ongoing math textbooks to worry about investing in anything these days ... and, after the business with the mortgage lenders (and other lenders such as credit card companies) I am inclined to follow the lead of G. H. Hardy and declare that the "real world" is quite unreal. I suspect am better off burying my nose in partial derivatives and surface integrals. A tycoon I am not. A fiscally conservative social liberal, I may be.
My livelihood is uncerain. If my books fail to sell and I go broke and have to sell my house, it'll be my own cotton pickin' fault, and I will in no wise expect a bail-out from taxpayers. (I'm also fortunate to be a bachelor, so if I go down in flames, no one else will get burned.)