The housing boom bad for the economy? Most would say I was nuts...and frankly, at this point, I wouldn't blame you.
But most are not thinking ahead. Most are just ringing the register as they watch their home prices continue to rise. Most believe prices will never come down again.
What if prices actually start coming down? Do you think that a condo that has gone up from $500,000 to $1 million in the past 2 years can't come back to $750,000? It can! It has happened before and it will happen again. Price will eventually dictate demand. The fact that prices may come down one day does not worry me as much as what individuals, as well as lenders, are doing.
For example, there has been a boom in interest-only mortgages. Just pay interest and build up no equity in your home in hopes that prices will continue higher. What do you do 5 years from now if prices do indeed come down? You are upside down.
For example, there has been a huge cash-out of home equity based on TODAY'S VALUE...not the value that may be there a few years from now. In other words, take every bit of equity out of your rising home price...buy boats, planes and trains, and everything else under the sun, even another home. Have no equity and then prices come down. You are then upside down.
It is my contention that too many are treating their homes like an ATM. Too many are betting that prices are going to rise forever and all will be well. I just have a very sharp memory of the last time everyone said prices would never go down. It was called the dot-com boom.
Housing Boom Debate — Read the opposing viewpoint HERE.
This weekend our Business Block has much more on real estate trends and how they affect YOU. Tune in Saturday 10am — noon ET.