Two years ago, anyone who wrote about the housing bubble was dismissed as a conspiracy nut. Now hardly a day goes by that the headlines aren't splattered with the details of the massive meltdown in the real estate market.
What changed? The facts are essentially the same today as they were back then. In fact, the "Economist"--as well as many independent journalists--had already shown that the Fed's low interest rates had inflated the biggest equity bubble in history which could potentially bring down the entire economy.
Now, all of a sudden, the media is acting as if the problem sprouted up overnight?
Why?
We pretty much know why, but Mr. Whitney goes into detail. I like this next quote:
Hooray for the "faith based" stock market!
The outcome of this nonsense was entirely predictable. Now that the market is plummeting, the blame is being shifted to profligate consumers. But the problem originated at the Federal Reserve; that's where the responsibility lies.
The United States now faces a number of grave economic challenges---global trade imbalances, a depreciating currency, a falling stock market and a deflating housing bubble---All of these are similar in at least one respect. They are all self-inflicted wounds which derived from profit-motivated foolishness, lack of political vision or ideological fixation. America's downward slide is entirely its own doing. No one helped.
Buffett is right. America is selling itself in bits and pieces and calling it "prosperity". Both political parties are responsible.
Kinda like selling your kidneys and then wondering why you can't take a leak and are turning yellow. Helpful hint: you're fixin' to die, fool!
Down the street from me is a new housing development consisting of many, many 'town houses' or some such fancy name. Multiple blocks of attached dwellings in the $599K range. Many of these units are finished, but I haven't seen lights or curtains in any of the windows. Many more stand unfinished, and I haven't seen anybody working on them even though our good construction season has arrived. Some of these places have no doors or windows and stood open to the elements all winter, along with piles of construction materials - floor joists, assembled rafters, etc. - which have sat out in the snow for months. I don't know for sure, but I think the developer tore down a coupla hundred acres of woods only to walk away from a losing proposition. I hope not, but that's the way things seem to be going.
The ripple effect of construction workers not working - not having money to buy stuff from local businesses - remains to be seen, but it can't be good.
I got a phone call the other day from a local realtor. I didn't know her, but she asked for me by name and started describing a house she had for sale a coupla blocks away. I asked her why she was telling me all this, and she wondered if I might know anybody from out of the area who might like to move here and buy the house. I told Mrs. G about this and she said the lady sounded kinda desperate, making calls like that outta the blue. Mrs. G knows a lot more about that stuff than I do, but it sounds about right.
Home prices have gotten out of hand in the last few years, and folks have been taking desperate financial risks to get one before that perceived slice of the American Dream is snatched away from them forever. Others thought they could cash out quickly and make money. Some did, but most just had visions of easy money and got caught in a pyramid scheme run by the Big Boys. Lenders have enabled this just like buying booze for a drunk.
The bill is coming due. Like it or not, it's time for all involved to sober up and look for their pants.
I own my own home free and clear. One of the few benefits of staying in one place long enough to get old.
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