Thursday, August 09, 2007

Housing bust

If anyone cares, I predicted the subprime bust at least 3 years ago. It was accidental, but I still say through the hoopla. My concern (unlike the markets today) was for the housing consumer. The subprime bubble, which was predicated on nothing but appreciating home values (another fucking bubble that people still are unaware of). Low-income consumers were opting to buy houses they couldn't afford using crafty loan products they weren't told would explode upon them. From an outside perspective (I rent...the housing values bottom out an average of about 7 years after they peak which is also the year I turn the average age people buy their first house, late 20s) it should have been obvious to anyone paying attention. I was fresh out of college when Air America launched (actuallly, add a couple of years, I was 24). All the ads were for either 'interest-only' loans or for 'negative amortization' loans. Either way, the loans were exploitative. Either you relied upon a stable housing market or you bet on your house price rising above its current value. Only they probably didn't tell you that. The crafty mortgage lenders only gave you enough info along the lines of 'you can afford this house' without even verifying how much you earned. Somehow, income and expense were no longer linked from the housing perspective even though most people spend between 33 and 50% of their income on housing (I spend about 34% and, again, I rent). If people with sub-prime mortgages are depending on housing price growth (not to mention the interest rate jumps after 2 years) to fund their house, it's no wonder they got burned. It's a con. Simple as that; mortgage originators wanted volume, low-income folks wanted houses, details were ignored, and, what?, the loans turned out to be no good? Go figure.