New house sales are at a record high. That is today’s word from the Government, and that means people who own stock in house builders are happy. The report takes care to point out that rising mortgage rates don’t seem to be slowing home sales. I think it would be more accurate to say everyone is rushing to get the mortgage papers signed before rates go higher.
That last link points out that in some areas of the country, new home sales rose 53%. While that is clearly unsustainable, the Federal Reserve says there’s no housing bubble. Oh yeah, and they go on to say that it isn’t a big deal if there is. Everything is alright, even if we are wrong, unless we are also wrong about that. This study concedes that housing prices have been rising at double what was considered a high rate in the past, but reassures us by using what appears to be a very narrow definition of a bubble:
That definition says a bubble exists “if the reason the price is high today is only because investors believe that the selling price will be high tomorrow — when ‘fundamental’ factors do not seem to justify such a price.”
Don’t you feel better now?
Since housing prices are rising rapidly — but not alarmingly, the Fed tells us — and salaries are not, something’s got to give. For example, people are going to have to accept buying homes in previously undesirable urban neighborhoods. Like maybe Newark. Or maybe people will resort to housing assistance. Or just spending too much. In some areas of the country, we are already at the point where people are buying just because they fear they will not be able to afford to later, and if that isn’t a bubble I don’t know what is. It bodes ill for future prices.
The fact of the matter is that the Bush Administration is doing everything they can think of to encourage home ownership, particularly among minorities. It is a core Conservative belief that owning real estate is the cornerstone of financial stability: it is more than a home; it is an appreciating asset; it is potential collateral for loans to send kids to college or start a business; it is the American Dream.
Unfortunately, they must have slept through all those disclaimers about how no one investment is for everyone. Saying everyone should own a house is like saying everyone should like chocolate ice cream, or everyone should drive an American car. It just isn’t true. The truth is that it can be tough to own a home, and many people are spending too much of their income to say they own one. This is even a bigger problem among minority homeowners. Nor is this particularly “news.” Complicating the matter is a variety of alternative mortgages which bring down the initial payments, but may result in unpleasant surprises years down the road. Since it is clear that mortgage rates are going up, this may be the last chance most homeowners have to read the fine print and refinance ARMs and other “creative alternatives.”
We have no fear of “Murphy’s Law”, for it has been re-written:
“Anything that can go wrong, is harmless as a kitten!”
You may quote me.
The Imponderable Coupletizer
“Psychologies Framed, Philosophies Blamed!”