More on the economy & housing bubble

[widebody911]

(I remember asking in a previous thread "where is all this money coming from" and nobody answered. Here's the answer)
http://globalresearch.ca/articles/ENG407A.html

...

The US Home Bubble

The official US myth is that the recession of 2000-2001 ended in November 2001 and "recovery" has been underway ever since. The reality is not so positive. Using record low interest rates, the Fed has lured American families into debt at record rates, creating what might be called a "virtual recovery," financed by record amounts of new consumer debt. There has never been a recovery before in which debt levels increase, rather the opposite.

The American dream of owning an own home has been the source of the record lending, helped by the lowest interest rates in 43 years. Greenspan has often boasted this has been what has propped the US economy since 2001. When families buy a home, they need furniture, they employ construction workers, electricians, engineers, and the economy grows. Record low interest rates have made it very easy for families to get a bank loan, using their home equity as collateral or guarantee. These loans, tied to the rising real estate prices, allowed American families to finance new furniture, cars, and countless more. In 2003 banks made a record $324 billion in such home equity loans, on top of $1 trillion in new mortgage loans.

All this economic consumption has created the illusion of a recovering economy. Behind the surface, a huge debt burden has built up. Since 1997, the total of home mortgage debt for Americans has risen 94% to a colossal $7.4 trillion, a debt of some $120,000 for a family of four. Bank loans for real estate purchases have risen since 1997 by 200%, to $2.4 trillion. Average US home prices have risen by 50% in the period since 1998. In 2003 alone a record total of $1 trillion in new mortgage loans were made. In 1997 mortgages totalled $202 billion.

In many parts of the US, home price inflation has become alarming. An apartment in Manhattan is now above $1 million. Home prices in Boston have risen by 64% in five years. California real estate prices are soaring. On average US home prices have risen 50% in six years, an unprecedented rise, driven by Greenspan's easy credit. In seven years to 2004, prices of US homes had risen on paper by $7 trillion to a total of $15 trillion, the highest in US history. The problem is so obviously dangerous, that Greenspan recently was forced to deny existence of any real estate "bubble," much as he denied a dot.com stock bubble in 2000.

But that is exactly what he has created with his low interest rates. The dot.com bubble has been transformed into a larger and more threatening real estate bubble. Families have been convinced to invest in a home as an alternative to buying stocks for their pension years.

[tabs]

I remember Greenspan talking about "irrational exhuberence" back in 98, 99...does that count...

I will profer a different interpetation...911 rocked the economy so badly that one, interest rates were lowered I believe 4 times in the 2 weeks after 911 ultimately coming to rest at a 40 year low of 1%. Second the threat of terrorism rocking the economy again was such a SCARY proposition that a FISCALLY CONSERATIVE Repblican President was willing to run a $500,000,000,000.00 deficeit.... to not only insure the economy stabilized but that the threat of terrorism was dimenished.

Remember everybody wants the American consumer to keep on spending...it's 66% of the US economy....and for you to do so you need to be fat, dumb and happy.

[techweenie]

Originally posted by tabs
... a FISCALLY CONSERATIVE Repblican President was willing to run a $500,000,000,000.00 deficei

Can you say 'oxymoron?'

[tabs]

It's spelled...Capital F small e small a small r.....Fear.....

[badcar]

So..
More people owning homes using cheap money is bad. Instead of have an average debt of $120k at 9%, we have 6%. For those of us live in the interior US, realestate gains have only paced 4 to 6% a year, just above inflation here in Indy. Less money paid to interest does fuel other portions of the economy. JMO

[turbo6bar]

West and East coasts are looking ugly. Same story as badcar. It's not my fault some people don't know how to manage debt and money.

[CamB]

More people owning homes using cheap money is bad.

Not really, just that there are indications that the present conditions are unsustainable and this has implications in the future.

Interest rates are going back up... and there is more debt than there was.

[Bob's Flat-Six]

[QUOTE]Originally posted by tabs
[B]I remember Greenspan talking about "irrational exhuberence" back in 98, 99...does that count...

I liked "unbridled" too, I forget the whole quote.

[Moneyguy1]

Indianopolis is NOT California where the prices have shot up to an unsustainable level.

Upstata New York (where I used to live) isn't a desirable place either for most people. Prices there are falling in som areas despite low interest rates.

[Porsche-O-Phile]

I'm just going to sit back and laugh my a$$ off at all these idiots that bougt WAY more house than they could afford and realize it too late when the rates start going up. All the while, I've been getting rid of my debt, cleaning up my credit history and putting money in the bank. When the foreclosures start, the fun for people like myself will begin. THEN I believe there will be real opportunity to snap up real estate at an affordable price, hopefully enough of it to get my hands on rental property to pay off the mortgages for both my residence and the rental property.

Soon this great day will come. Hope at last for the "real" people that work hard and have had the door to housing slammed in their faces by "I-live-on-credit" morons for the last 5-10 years. Payback is going to be a real b1tch and I'm going to love every minute of it!

[LeeH]

So many people walk a financial tight-rope and do it without a net. We have friends who live paycheck to paycheck and use all of their home equity to buy stuff. It can be frustrating when they have the latest computers, digital cameras, cars, etc and we live a much more conservative existance. The difference is... we are 100% debt free!

[Moneyguy1]

Lee...You are to be congratulated. Get a copy of "The Millionaire Next Door". Fascinating reading.

I don't mind driving an "older" car, or not having all the latest gadgets. I get 'em sooner or later, but on my terms.

[LeeH]

Originally posted by Moneyguy1
Lee...You are to be congratulated. Get a copy of "The Millionaire Next Door". Fascinating reading.

I read that one a long time ago and loved it. Maybe I need to read it again; it will make me feel better about driving the '98 Trooper.

I really worry about how some of my friends will fare 20 years from now. One (at 44) says that he already accepts the fact that he will have to work until the day dies just to survive.

[techweenie]

Originally posted by LeeH
I really worry about how some of my friends will fare 20 years from now. One (at 44) says that he already accepts the fact that he will have to work until the day dies just to survive.

Retirement is a relatively recent notion, you know. People used to work until they literally couldn't. I think part of the original intent of Social Security was to induce retirement so that jobs and career paths woud open up sooner.

They say social security will run out of money in approximately 2014, which is pretty disappointing. I've paid in about $80,000 and I'd really like to have it back!