02.13.08
Did Terrorism Create the Housing Mess, And should it be fixed?
I might have titled this piece the Perfect storm that caused the housing mess, but I think blaming terrorists is more likely to get you to read it.
The story really starts in the Dot Com Bust. Post Y2K the price of Housing was falling. They really started their descent in 1999 and when September 11, 2001 hit the economy and the housing market really slumped. While interest rates were approaching record lows, people were too worried about their jobs to go get houses, or be optimistic with how much they could afford.
In December of 2003 the Federal Funds Rate dipped below 1%. All of a sudden you could by a house on an interest only loan for a fraction of what the rent would cost. The availability of credit caused a surge in the housing market the value of homes increased nearly 8% a year for 5 years, meaning if you bought a $400k home in 2003 it would have risen to nearly $600k making you an easy $200k and saving you the money you would have spent on rent, meaning you could have easily made $200k with out spending any money that you wouldn’t have spent anyway.
We all know that as interest rates doubled, tripled and Quadrupled, so did the monthly payments, creating the mess we are in now.
But why are we looking for a Government bail out?
When the Dot Com’s went belly up and that bubble burst we didn’t bail out the fools who lost money on investing in stupid.com. We didn’t bail out the people who lost money in the Enron Fiasco.
So why are we bailing out the people who can’t afford to stay in the house they shouldn’t have been able to afford in the first place? Why not let the market correct itself, and those of us who can now afford the adjusted pricing can live the good life for a while?
Part of managing the economy is keeping growth of investments in check over all. Part of making the economy balanced, stable, and diverse is making sure that risk reward is maintained. If everyone can get 10% return on investment buy X, then no one will by Y at 5%. If 50% of the people can make a 25% ROI on X and 100% can make a 5% on Y there will be a better balance, as some people will choose the safer option.
Personally I would be happy to see all of those people with home foreclosures move in to apartments. If they want an economic bail out, it should be in the form of saying that lease agreements can’t bar them from renting based on a credit check. And if their house is worth less than when they bought it, well the bank and them will have to work something out, but I’m ok with bankruptcy court settling it.