November 24, 2009
-- by Dave Johnson
Have you noticed signs of "bubble mentality" in the housing market in your area? In my area the bubble is reignited by cheap credit and government subsidies. Just this week a relative told me that "housing prices will come back" because "housing always goes up." People are talking again about "snapping it up" and doing it "before you get priced out of the market." Low-end houses are getting dozens of offers above the asking price.
People have been trained to think that the way to get ahead is to buy real estate. You buy a house, after a while you use the equity you build up in that house to buy another. Either "trade up" or buy investment property. In my area most of the home sales are at the low end, are bought with cash, and are bought by investors who plan to rent the house out. (Even though rents are falling.)
People still don't get it that we were in a bubble. People don't get it that prices have not yet reverted to the mean.
Here is the hard news: The tulips will never be worth more than gold again. The "path to wealth" isn't real estate anymore.
And it isn't working. The Wall Street Journal this morning:
Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.
The bubble won't end until the bubble mentality ends. Until then a lot of people will only get hurt.
A house is a home, not an investment.
Posted by Dave Johnson at November 24, 2009 6:35 AM
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