Sometimes People are Dolts: POP Goes the Housing Bubble

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Housing Bubbles Will burstSometimes people are dolts. That’s certainly true of home buyers and lenders. Only a few years after the economy and real estate market tanked housing prices are rising again – rising with irrational exuberance to borrow a phrase from former Fed Chairman, Alan Greenspan.

The last time around, housing prices went up double digits every quarter. In places like high-cost San Francisco bidding wars broke out and buyers often sweetened their offers with Hawaiian vacations or expensive cars to seal the deal. Rare was the house that went for list. They often sold at double digits over list.

Housing Wars: Nostradumbasses at the Crystal Ball

When irresponsible lending and borrowing astronomically inflated prices, many people got caught sans their financial floaties when the market sent them deep underwater. Houses emptied as quickly as they had filled. And instead of seriously restructuring loans, lenders kicked many hapless borrowers to the curb selling property for pennies on the dollar, if at all. Some cities became virtual ghost towns.

It’s disingenuous for lenders to claim they didn’t see the collapse coming. Borrowers let their desires overcome their common sense. Meanwhile, those with sensible financial planning got sucked into the real estate maelström, often losing hundreds of thousands. It’s double the insanity to look in the rearview mirror now and resist lender regulation and sensible borrowing. It’s a clear case of Nostradumbasses at the crystal ball.

In the first Bay Area bubble, there was a shortage of $1 million+ homes. With fewer paper millionaires in Sillycon Valley the shortage now is in 3-bedroom, 2 bath houses that are the staple of most markets – at $450-$550k a pop to the amazement of those living in Peoria.
Of course that buying spree drove hyper-inflated rents. Small, single bedroom apartments in the Valley now go for $2400+ and are barely slowing.

Many companies moved employees to “cheaper”, now more expensive, locations on the San Mateo peninsula and City of San Francisco. Formerly low-income bastions are quickly being gentrified out of existence, driving prices up and people out with nowhere to go. Not surprisingly the displaced are none too happy and have attacked several ubiquitous company buses in retaliation.

Rising Tsunami of Gentrification

Traffic and transit can’t handle the load and the large-scale, fast rising tsunami of gentrification has forced workers farther and farther away, leading to higher prices in the formerly untouchable ‘burbs – ‘burbs now sometimes 50-60 miles away from the office. One guess as to where the prices are going is in towns like Livermore, Tracy, and Stockton.

We must cool down the modern-day 49’s and responsibly let some of the air out of this bubble. Lenders must either voluntarily start loaning responsibly — $50,000 salaries don’t equal $3,000 mortgage payments – or more likely be legislated into it. Just because lenders can get cheap money is no reason to abandon common sense talking up untenable mortgages to the rubes.

Borrowers must do their part too. Like it or not, the lower and middle classes are losing the Class War. There’s no reason to believe your deficit spending is going to give you a permanent residence. If you grouse about the nation’s spending and debt, practice what you preach.

My sure-fire prediction is that we’ll be hearing a large “POP” soon and prices will tumble once again. I’m warning all you blind folks about the coming calamity. Don’t you dare tell the rest of us it was impossible to foresee again. If you do, you’re too criminally incompetent to even handle your lunch money or have such poor vision you need glasses that make your excessively poor vision correctable to 10:10.

I’m getting older, tireder, and feistier. If you screw me again I’ll hunt you down like the filthy dumbasses you are and beat you to a grease spot in your over-priced driveway.

And, you can take THAT to the bank.

4 thoughts on “Sometimes People are Dolts: POP Goes the Housing Bubble

  1. According to an article in the Rolling Stone the bankers have done the same thing with student loans that they did with toxic mortgages. I keep reading here and there that will be the next bubble to burst. That also explains why bankers are fighting so hard to keep people from being able to refinance their student loans.

  2. I sold real estate for seventeen years, from 1991 until 2008, when everything went to hell. Those of us in the industry knew damn well the bubble was going to burst, and badly. What few experts, now or then, seem willing to discuss is that the wildly appreciating housing market was a phenomenon which occurred only in a few places where housing has always been far more expensive than in average markets. In my market, which was priced at dead average for the U.S., the lenders used the same model of appreciation that was used in San Francisco. And when the bust came the west coast model was used again to depreciate homes. In an average market here we assumed four percent appreciation annually. During the bubble, we saw seven to eight percent appreciation, not two and three hundred percent. After the bust, prices fell about fifteen percent here, but if you applied for a home equity loan the banks claimed your property value had fallen by more than fifty percent. In my case, I received a letter declaring that my equity line had decreased because the house which, six months earlier, was valued at two hundred ten thousand dollars was now worth seventy five thousand. I later sold it for one hundred and ninety five thousand. My point here is that the real estate market varies hugely from one geographic location to another and that the standards that lenders use need to reflect that reality. We don’t all live in New York and Los Angeles.