THE HOUSING BOOM OR WATCH YOUR ASSES
Why booms happen: because there is money out there with no place to go.
The real estate boom of the last several years has been rocket fueled by the lowest interest rates in half a century combined with printing money (increasing the money supply). The Fed did this to get us out of the recession they created when they raised rates too high. Everybody refied their existing homes at the low rates. And what did we do with the cash? Spent it of course. On cars, boats, furs, and "debt reduction" Economy goes boom. A word here about "debt reduction"---paying off credit cards and high interest car loans--the data indicate that while some debts were paid off we apparently went right back into debt even deeper. Debt has grown at four times GDP since 2000 and the "money supply" has grown 20% per year over 2000 through the 2001 period.....a 40% growth in the amount of money out there for us to piss away.
The result of this cheap money boom is a staggering increase in the "value" of homes in many states. Since January of 2000 California housing prices have more than doubled; take that you stock market dummies. In the extreme Northeast housing prices are up 74%, plus 68% in NY and PA, while the coastal corridor from there to the south has produced gains of 57%. Prices in the rest of the country are up around 30%.
I only mention this because as rates rise we will be attracting capital to this country from outside that will hopefully invest in businesses. Hopefully---again---the housing market will cool and not freeze over. Those of you who have been "flipping" but haven't done so lately may be in for a shock. Now for the really bad news.....
The term is "exotics" like in babes too fucking gorgeous to touch because you know fucking well you aren't good enough for them. You just instinctively know the bitch will dump your worthless ass for somebody better the first chance she gets. If only you felt the same way about these "exotic" home loans. Trust me, you ain't good enough for most of them but far too many of you are in them. These include "interest only" loans for the first months or years, adjustable rate mortgages that adjust for reasons other than the 30 year bond, and reverse mortgages. The rule in finance is: if you can't explain it to your ten year old in 30 seconds so that the kid understands it, don't do it. The Fed is screaming because 30% of current mortgages are "exotic." This means the banks are speculating in the housing market and if all of a sudden too many people can't pay......the banks have no money. Which means business has no money. Which means an economic situation that could turn more than ugly. Watch your assets.
