Myth Busted: Being Owned By the Ownership Society in California: How Housing and Credit Came Crashing Down.
In 2003 President Bush talked about an ownership society to encourage the American public to take personal responsibility for their own actions and success. This was the rallying cry for the major tax cuts that were being pushed onto the American scene supposedly to bolster economic growth. The plan itself seemed to be working for a few years since homeownership rates were going through the roof and it seemed that all was well. However, the underbelly of that boom was that America in a decade long bubble through deficit spending, was only forestalling a time when all would come crashing down.
The debate has shifted in the last few months with many now feeling that the credit crisis is behind us. Many are now looking forward thinking that the worst in the housing market is here and we are now nearing a short-term bottom. However, others have likened the current environment to being in the eye of a hurricane; that is, the calm right now is very temporary and we still have a large storm heading our way. In this article we want to examine 5 key housing stats that still show major weakness in the U.S. housing market:
It probably won’t come as a surprise to you that consumer prices are rising at an incredibly rapid pace. If you were to only look at the Bureau of Labor and Statistics (BLS) CPI numbers you would think that inflation is hovering around 3 to 4 percent. Of course this is utterly devoid of any reality given that food, energy, and even housing prices are growing exponentially. For the average family housing is the most expensive monthly cost to their budget. Given that 67 percent of Americans own their home and the rapid rise in housing prices over the past decade, why has inflation been low?
The much anticipated rebate checks start going out today. In fact, over the next few weeks $110 billion will be sent out to the American public. This week, only electronic deposits will occur with paper checks being sent out later. There seems to be a contingency of people who believe that this is enough to turn the economy positive and avoid a recession. I’m not sure how that will be the case since our employment situation is precarious at best.
I’ve been reading many articles talking about those that are currently “walking away” from their homes. It is now common knowledge that some people are intentionally walking away from their mortgage commitments. When we talk about walking away, we are talking about a very specific group that can pay but is choosing not to do so. Of course choosing to pay can be an argument in itself; are we talking about someone who just had their rate reset and is going to pay 80 percent of their net income to their housing payment or are we talking about a speculator who realizes he cannot sell his home and is now simply letting the mortgage go into foreclosure?
Someone sent me an e-mail with a graph of the difference between past and current mortgage lending. I decided to spruce up the diagram to give you a better idea of how many additional layers have been added to the current mortgage lending process. What you’ll notice is the detachment from the actual real estate asset in the new model. In the old model, banks had a major incentive to make sure you did not default on your loan. In the current scheme of things, independent rating agencies and appraisers supposedly were the buffer to all this yet they of course had no actual money in the game. That is, they were paid by the banks and investment firms to meet their expectations or face being out of a job. Hence the new allegations that are now coming out where appraisers inflated real estate prices at the behest of banks and investment firms essentially had rating agencies over the fire in terms of rating whatever they brought to the table AAA.
Retire Extremely Early: Dollar Cost Averaging and Maintaining a Positive Attitude in Tough Economic Times.
During trying times I think it is very easy for many to get pessimistic with all the negative news and let their ultimate goals slip away. Simple rules to live by include keeping debt to the lowest level possible and having clear cut goals of where you want to be in 5, 10, and even 20 years. Wherever you are in life it is never too early or too late to decide what you want out of your life. Money should be a method of achieving your goals and not the ultimate purpose. Unfortunately many Americans live their entire life waiting for that far off day in retirement only to realize that life has passed them by. Why not enjoy life right now as well? As you may already know, I am pretty conservative in my investing style and the current state of our economy has only highlighted the worst in investing habits for the public. We collectively as a nation have become a debtor nation and that is a sure way not to reach your goals.