Reporting from: Phoenix, Arizona
Sometimes it’s easy to understand why we keep making the same mistakes over and over again. And why there is another US real estate bubble coming.
I like to use history to show examples of how governments have done the same economically disastrous things before, and how it turned out poorly. Like how broken governments going back to Rome’s Diocletian have debased their currencies to screw their citizens and keep the party going. It eventually all implodes.
While you know the truth, there are no doubt people around you who are completely asleep at the switch. Like the ancient Romans, the pre-Revolution French, or those in the Weimar Republic, they won’t see it coming. It’s hard to prevent history from repeating itself when the masses don’t remember what happened in 1913 let alone 313.
Apparently, they don’t remember what happened in 2008, either.
I spent about an hour this afternoon listening to a sales pitch by several American mortgage brokers about all of the bright spots in today’s real estate market.
Mind you, this is in an area that was decimated by the economic collapse. Housing prices dropped by as much as half. People who had no business owning homes were given seemingly unlimited buying power.
People who already owned homes purchased at ridiculous valuations were given a couple jet skis and a cookie-cutter 5-series like it was their birthright.
And even CBS News is reporting that homeowners are once again treating their homes as ATMs, with nearly $14 billion yanked out in 2012.
Yet these mortgage brokers were tripping over each other to giddily proclaim how new programs had just returned to the market.
Among them? Ways to get around down payments by using multiple loans. Way to eliminate mortgage insurance with practically no down payment. Ways to buy luxury homes – up to nearly $1 million – with little cash out of pocket.
I was starting to think they were going to pitch just about every kind of work-around you can imagine, all in an attempt to lure new buyers to the table for cheap money. If you already own a home, you’re in luck, too – why not “cash out” and spend some of that money while the Fed has rates through the floor?
Heck, they even proclaimed the timeline for issuing loans to foreclosure “victims” was shrinking.
People were clamoring to “unlock the dead equity” in their homes. I guess they never learn. This is the same level of irrational exuberance that put us in the mess we’re in today, only for savers to be told they have to take it on the chin and suffer insultingly low rates to bail out people like this.
Then, the Fed fired up the printing press and devalued said money earning insulting low rates even further, basically stealing right foom your piggy bank. (But, of course, “Cyprus” could never happen here)
In many of the same cities where these new programs are slowly being re-introduced, hedge funds and investment bankers have snapped up dirt cheap homes for their high rental yields. This has caused prices to bounce in a big way.
A friend of mine in Phoenix paid $190,000 for his house right at the bottom of the market – it’s now allegedly worth $245,000 some twelve months later, a 28% increase. Economists have said rates of even 8-10% are “unsustainable”.
Once prices get high enough, investors will back out and dump their appreciated properties on the market to do the “cash out” routine these mortgage brokers so fondly talk about.
Since investors have fueled half or even more of the resale purchases in some markets, it’s not going to be pretty. But hey, let’s loosen standards to get more people back in homes with newly driven-up prices so we can start the cycle all over again. Duh.
Why let the excitement of easy money and lax down payment requirements get in your way? Why remember the lessons of all of five years ago when you, too, can move into a freshly overvalued home with little out of pocket?
Don’t worry about the lower lending standards or mortgage slight-of-hind. Just enjoy your sixteen-inch travertine floors safe in the knowledge that real estate prices in America never, ever go down.
At least not this time, you’ll tell yourself.
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