Well, with mortgage rates down and the fed creating so much money, anyone with the price of an automobile can get some kind of house. I was dismayed to find that a friend of mine who lives in LA and who is in his mid-forties has just now decided to buy a house in the hills. Here's someone on an academic salary who has probably tied himself to a mortgage of $350,000 --if not much more.Even with low interest, the payments must be over $2,500 a month.
I don't think he realizes that he is leveraged in real estate in a ghastly way. This bubble is even more insidious than the tech stock bubble, since it is encouraged by tax deductions for interest, and since home ownership is considered the height of prudence by most people.
On top of that, probably a large percentage of mortgages are adjustable. A 2% rise on $350,000 means $7,000 more in interest per year, as I hardly need say.
If the dollar sinks too much, and the stock markets sink along with it, and inflation increases, the Fed has nothing to do bu tighten up and raise interest rates--or rather, tighten, and follow the inevitable interest rate rise.
All I know to do is to try to stay out of the way, keeping out of debt in the most old-fashioned way. I am trying to preserve my real capital by putting it in bonds denominated in currencies that can rise against the dollar. And oil and gas, which will not go to nothing, and some gold. |
