Wednesday, August 23, 2006

Now suddenly everyone says "bubble"

Flash back to over a year ago when we were watching the hottest housing market ever seen in the US and you will find people like myself trying to point out that it was a lot of hot air. My prediction which I had actually made years earlier was based upon the similarities between the tech stock bubble (which I also predicted)and the housing bubble. The same vapid illogical and inane arguments presented then were presented again. The formula for me seemed pretty simple: in order for these housing prices to be sustained, there needed to be more income available. Instead what we had were lenders loosening up the requirements and buyers depending upon the market continuing to rise. It seemed obvious to me that eventually the prices would rise so high and enough people would have already bought that it would reach equilibrium so that the demand would lessen and the supply would lower prices. Prices have in effect been articially kept high.

The real estate industry, having created this mess with their hucksterism, continues to sell the snake oil, and it is shameful. The one thing I did not predict was higher gas prices adding to the mess. The feds need to raise interest rates in order to combat inflation, but are refusing to do so because they don't want to cause massive foreclosures caused by those who were suckered into buying a home under the impression that there was only one way to go and that was up. I predict that they will be forced to raise interest rates.


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