Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: Steve Lee who started this subject	3/7/2002 10:27:43 PM
From: sylvester80	Read Replies (4) of 99280

The message that answers all your questions about the housing bubble. How's that for getting your attention. lol. I've been thinking lately about the housing market and how could have been so resilient in such a downturn. Lower rates help somewhat, but historically during downturns and rising unemployment, the consumer stops buying no matter what the rates. But then it hit me. Congress changed the real estate capital gains tax to the point that you will have to be brain dead to NOT buy a house (or sell a house if you owned one with huge profits in it - and of course once you sell your current one, you go and buy another one that is just as overpriced as the one you just sold, or even more so :). So what changed you ask? The $250,000 free profit for individuals ($500,000 for couples) on the sale of your house that you've owned for more than 2 years. You heard right! UP TO HALF A MILLION DOLLARS OF TAX FREE MONEY! That was the magic carrot that IMO, has kept the housing market booming and the US economy for really going to the crapper... so far. I say so far because this boom in housing has also skyrocketed prices and increased the debt burden of the US consumer (the double whammy). As typical of bubbles in the stock market, same is true in the housing market where people keep buying more and more expensive houses thinking that prices can continue go up forever and they can sell them to some other sucker for even more money and pocket the profits, TAX FREE. That sounds a lot like our NASDAQ bubble, doesn't it? <gg> IMO, the housing market will very soon go bust and the impetus will either be the FEDs raising rates or the fact that prices have risen so much that the buyers just dry up or a bit of both. And even though the Fed has not acted yet, the 30 year mortgage has already started to rise again recently. So keep your eye on the housing sector for signs of weakness that can spill into the rest of the economy. The times ahead may be even harder than most of us realize... Just some food for thought and a new indicator to keep your eye on in the months ahead. JMHO. Good luck to all.

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