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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (24366)	10/9/2004 11:33:10 PM
From: Mike Johnston	Read Replies (1) \| Respond to of 306849

Yes, Greenspan's gambit is that people will feel richer and of course many people are richer. However at the same time a lot of people are hurt by those policies and will feel poorer. 1. The buyer has to spend 500K instead of 200K therefore he is by 300K poorer. That means he will have to make a 100K downpayment instead of a 40 K downpayment and his mortgage payment, insurance and real estate taxes will consume a higher percentage of his income. It means less money for vacations, eating out or investments. Of course if that house would be worth 700K the following year he would come out ok but only because the next person in line is 500 K poorer. 2. There is another, ugly side of low interest rates, which are necessary as a fuel for the housing bubble. A retiree that maybe has 200K in a savings account or a CD, a few short years ago could get maybe 15 K in annual interest which would be well ahead of inflation in that time. Recently he would be lucky to get 3-4 K. He would have his income slashed significantly while at the same time living and health care expenses are increasing rapidly and inflation is destroying the value of the 200K nest egg. Talk about a triple whammy . Does he feel richer ? 3. The housing bubble makes local economy less competitive and puts more pressure on business to go offshore which in turn leads to more local job losses and tax base erosion. It would be foolish for a business owner not to relocate to India or Kansas if that option would be available due to the nature of the business, when he has to pay his employees 100K/year just so they can afford to live in an old 2 bedroom bungalow. It is pretty bad that you have to shell out in New Jersey close to 300K for something that looks more like a tool shed than a house. Regards