Dr. Housing Bubble 07/07/08

[Crewleader]

Housing Future: How the American Public Will be the Proud Owner of Toxic Mortgages and Unwanted Housing. A 4 Step Program.

Hope everyone had a great 4th of July and took a break from the torrent of bad economic news coming at us like a flock of seagulls chasing a half open bag of Doritos. Now that we’ve enjoyed our minor respite it is back to the grim reality that equity in homes, once the bastion of the consumption machine is no longer there like a skyrocket bursting in air. The market on Monday reflected the absolute uncertainty and tentativeness of investors trying to figure out what in the world is going on. Initially, the DOW shot up 100 points then quickly reversed downward by 160 points, and closed the day down 56 points.

This market momentum simply reflects the deeper psychological rips that the credit market is causing. The news that ushered in this mania was the fact that, hold on to your hats folks, Fannie Mae and Freddie Mac may need a bit more cash. Now wouldn’t we all like a little bit more cash? Guess what folks? The government has read your mind and is talking about a second round of stimulus checks! Where will this money come from? Who cares! Fire up the printing presses because we are taking a lesson from Zimbabwe here.

So what was the big deal with Fannie Mae and Freddie Mac:

http://www.doctorhousingbubble.com/housing-future-how-the-american-public-will-be-the-proud-owner-of-toxic-mortgages-and-unwanted-housing-a-4-step-program/

[SheilaT]

1. As someone who expects to

be looking to buy a house in about a year, I'm just hoping that the bursting bubble isn't done bursting, and that prices don't suddenly recover.

[Warpy]

2. They won't.

In fact, if past patterns are anything to go by, you can expect prices to continue to slide for some time, although the rapid deflation is just about over.

Looking at a house as a way to build equity over the life of a 30 year mortgage (15 year if you can swing it) and not as an investment to grow rapidly over the course of a few years is the prudent thing to do. Looking at a fixed rate mortgage as a hedge against rising rent is also prudent.

Just realize you'll see at least part of your down payment equity evaporate in the beginning. The longer you stay in that house, the farther ahead you'll be, though, as you begin paying principal along with interest.

In other words, if you only intend to stay there five years or less, rent. The first five years of any mortgage are mostly interest payments. You don't pay principal until later in the loan.

[SheilaT]

3. I have NEVER thought of a home

as a way to build wealth.

We've owned two different homes, and I'm relocating because of divorce. I do intend to stay put if I buy.