143 comments on Financial bubble - who will say that the emperor is naked?
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Houses are possible to sell. I just sold mine, for a gain of 3% (which is not much of course, bought it in 2002).
Ah, but if you had recently refinanced it and spent the extra cash on that shiny new Ford Excursion you've been flauting in front of your neighbors, you'd probably be in the hole by about 10% and up feces creek lacking propulsion apparatus while looking at further declines. Much harder to sell when it's a losing proposition and you can't cover the difference.
I'm not sure how it is in other parts of the world, but here in Los Angeles the roads are full of new, shiny 12 mpg SUV's. The drivers: ordinary folk making a middle class income that simply does not support such extravagance.
People here literally believe they have been given a free $300,000 (the rise in price of the median home in '01 to '05) to spend as they wish and now they are getting the SUV they never could afford in the 80's and 90's. Never before in history have so many ordinary people been given eight year's salary tax free, but maybe this time it really is different : )
A cashout refi paid for the vehicle and the $400 monthly gas bill is what a car payment used to be, so see, it is affordable.
Of course, the home prices will adjust in real terms over time and that gas bill will jump to $800 and even $1200 per month. Resources that could be used to purchase plug-in hybrids that could get us through the nightmare ahead are being devoted to vehicles that will be obsolete within a few years. It is a foolishness so extraordinary that one is baffled and amazed. And yet given the information available to them, people are not making irrational choices. Plumbers are not financial historians, nor are they geologists. History is full of follies like this and why should it be any different this time?
Home sales are at a 13 year low and a large share of those are forecosure sales. Yet people still think of their homes as being worth the 2005 peak price, and they are spending money (and planning for future expenditures including energy) as if they had $200,000 "in the bank." When that money disappears and America is forced to purchase its oil with "hard currency" it will be a very, very rude awakening indeed.
is that figure inflation adjusted? - 3% in 4 years isn't that much.