See, I Told You So

Note to readers: See the footnotes as you read through the post. Do not read the footnotes once you've read everything else, otherwise things will fly right over your head.

I live in one of the areas of Florida where the real estate values have gone up 40% in an extremely short period of time. Through my various travels about, I have run into people who are openly rejoicing that their $180,000 house is now "worth" $300,000.*

I was recently talking with an individual who I consider to be a spoiled numbskull. She has never worked a day in her life (20 or so years) & receives everything she has from mommy & daddy. While discussing some current happenings and playing a small game of "I care about what you have to say", she reveled that her father was going to sell their current house & purchase a new one. I questioned if this was the right time to be purchasing a new home since the already-normally-inflated-Florida housing market was in more than a 40% bubble. She dismissed my inquiry because her father "has been doing this stuff for a long time & he's really good at it". Oh, okay. So what you're saying is that even though our current situation mirrors that of the 1920's, prior to the Great Depression to the "T", ** this is still a great time to buy? So the mortgage that he is going to have to pay off, once this bubble either pops or begins to deflate, is going to be at least 25% over the then-value of the home?

When Greenspan says the same thing I'm saying, be afraid. Be very afraid.


*First off, something is only "worth" what another is willing to pay for it. Secondly, a house does not have equity until you have sold it and you are holding the cash in your hand. Until that time, "equity" is only an imaginary number, rather, it is only an idea. **One of the underlying weaknesses was the heavy reliance on credit throughout the US. Once families had maxed out their credit with various businesses, they refinanced their homes (remember our friend equity?) just to grab that last drop of cash. There was also the issue of uneven distribution of income & wealth. I do not have the exact figures in front of me but a clear majority of the money was control by a less than 10% of the population. Look around you. Do you see all these people driving new $40,000+ vehicles? Do you think they paid cash for that? Ever notice all of the sudden your neighbor gets two new cars/SUVs within a month of each other & suddenly they are getting a pool & granite counter tops installed? Where did that money come from? Reliance on credit & "equity".


Crispy