Housing Will Cripple America

Glen Dean fisks the Tennessean this morning. I love a good fisking as much as the next gal, and in this case Glen was mostly right. The Tennessean is beloved by almost no one. Conservatives hate its liberal reporting and liberals hate its localised obeisance to the Bible Belt ideologies. (It took me a couple clickthrus to realise that Egalia and TV On The Fritz were talking about the paper when they said Southern Baptist Times. I thought they were actually reading the Lifeway Newsletter.)

I do take issue with one of Glen's points, and almost left a comment there. But the comment would have been three feet long, and I wanted to yell at America in my own space. So forgive me, Glen.

He writes:
Home values rise because lots of people are looking to buy homes.

That's partially true. But my issue with the housing market is that it is currently the biggest culprit in the debtload crisis that I think will kill America.

Home prices have soared beyond all reasonable economic indicators because of two things. Lower interest rates and unconventional home financing. We shopped for our house for four and a half years before settling on the exact one we wanted at a price we could afford. We were "in the market" forever. When interest rates first came down, it meant that folks like us could "afford more house." After a year or so the builders caught on. They started building "more house" and asking the top market price for it. In the four and a half years we shopped we watched the price of our dream house go up more than $30,000. There's no way that was all "demand". Some of it had to be the builder capitalising on the fact that people could now afford more house. Right about the same time, the FHA increased its guarantee amounts, which meant that more people could take out larger home loans.

Two years ago I heard a radio commercial for an "interest-only" home loan. For years before that, I was hearing about 120 loans, downpayment loans and a whole other host of bad-ideas-waiting-to-happen. From where I sit, people are borrowing more money to buy more house so the builders see that people can borrow more money so they charge more for the house so people borrow more money.... on and on and on.

It's all fine and dandy now, but I dread five or so years from now when the economy starts feeling the pinpricks from this. Our working class is buried under "unconventional" high debt. More and more people have "too much house" and can't buy anything else. Trust me. We'll hear about that.