long-gone,
I think that we are doing the apples and oranges thing. The housing industry is the last bastion of much needed funding by the working man. When the tech bubble made our 401K plans look so good, we felt like we could go out and buy the world, and did. That is now gone. The asset that we have left is our home, and in order to spend, spend, spend, we must use it as a source of cheap money. With interest rates well below 7%, why we can use this asset to borrow more than the house is worth. What is a $50,000 house that is currently mortgaged at %75,000. Do not use a hot needle around it, or that "bubble" is likely to pop.
It does not matter to me that the houses are affordable! If you had money, you could buy Amazon.com at $300 too. A bubble occurs when what you have invested in something is not what you can get out of it, and the Company that gave you the money to buy this something wants it back.
The problem is that we are broke, we have spent all that we have, and we still want more. The only asset that we have left to create this is our home. Ditech.com, and lendingtree.com has money they must give away. So deeper in debt we go, and somewhere down the road, we must pay the piker.
Again, what is a cheap $40,000 house worth that you "own", but you owe 60,000 for it. Ask youself one more question. What happens to the value of this $cheap 40,000 house if interest rates go to 12%? No one will want it! How much can you sell it for? That has happened before in our lifetime.
Alan G. is in a pickle. He needs to raise rates, but he cannot. What next?
Terry
Terry |
