Wednesday, December 03, 2008

Don't Shoot The Messenger

When I started this blog three years ago, I announced on the masthead, and in many of my posts, that one of my topics of discussion would be the Housing Bubble.

Well, despite the continual denial by my real estate agent -- oh, the debates we had! -- that bubble burst during these past two years.

And if you're like me and you believe that the root causes of The Entire Freakin' World's economic woes derive from the bursting U.S. housing bubble, then you're not gonna like this next bit of news one bit.

We still have AT LEAST another year of increasingly difficult recession/depression ahead of us before anything starts to get better, despite President-Elect Obama's efforts.

Why do I believe this? Because of the chart at the top of this entry and because of analysis from this blog, Calculated Risk. If you believe that real estate will only settle down once the House Price-to-Income Ratio resets to its traditional value of 1.0 -- and I do -- then we have at least another year of travail ahead.

Hey, I called the burst of the housing bubble three years ago and protected our family's finances by selling our very nice house for top dollar, and then moved us into a nice rental. If your plan is to stay in place for the next few years, riding it out, then you'll be fine too. Bt if you absolutely need to sell, then best of luck.

You can believe this new news or not. Won't change reality one bit. You know what they say about denial...

Update: Less than half an hour after I posted this, the Washington Post put up a story that the Treasury is considering plans to artificially lower mortgage interest rates to home buyers by buying
$600 billion worth of Fannie Mae's and Freddie Mac's securities. While this could dramatically improve demand for homes and temporarily squelch drops in home prices, we won't see prices go back up where they once were. People who are upside down on their current mortgages -- owing more than the house is now worth? Screwed. Nor would dramatically lower interest rates stop the worst problem, foreclosures, unless wholesale, affordable refinancing was a possibility. Still, it's a good start.


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