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June 03, 2005

When the bubble goes "pop".

As people who know me or my work already know, my main goal right now (beside the usual stuff of daily life) is to acquire enough capital to build a condo development/enclave/intentional community somewhere so liberty-minded folks can live safely, securely, and free..

Toward that end, everything that I don’t plan to take with me when I go (other than what is needed for daily living) I view as either expendable or an as an investment. One such item that would fit both categories is my house. I bought it in 2000 for $47k and have put around 10k more into it in improvements. My house is currently assessed by the town as being “sellable” for $79k. (Oh really? Write me a check for that amount and it is yours Mr. Town Assessor! However, I digress.) Not a bad return on investment eh?

I am dubious though about all these pundits and writers of variable expertise and credibility who are keeping this housing market stoked to the max. I have a seemingly atavistic psychological need to “own” the home I live in and the ground it stands on. I am just that way. It is also an asset I can use to house my family and myself, and sell for a profit later.

However, I do seriously worry about what the value of that asset will be when I go to sell it though. This insane frenzy of real estate speculation, artificially low interest rates, artificially high land and home prices, ( which provides more tax dollars for the local and state governments too!) are all warning signs. I have this sinking feeling that a good many people are being caught up in real estate bubble similar to the stock market bubble of the late 1990’s.

“Ali you worry about everything man”, I am told quite often. This is of course true. Nevertheless, as Woody Allen noted, "Just because you are paranoid doesn’t mean they aren’t out to get you”.

At some point sooner or later the OPEC nations, Japan, and China are going to have enough US dollars in their vaults and portfolios that are steadily dropping in value, and whoever Bush appoints to replace Alan Greenspan as Fed Chairman is simply going to have to raise interest rates. He’ll have to my friends or allow a ruinous inflation to set in. Raise them substancially too.

When this happens, the results won’t be pretty either. People with ARMs are going to see their payments double. Default and delinquency rates on housing loans are going to surge. Many houses and much land is going to come onto the market at fire sale prices. So just when I go to sell, my (allegedly) $79k home will get no offers above $50k and so I am screwed. WTF is a person to do?

Posted by Ali Massoud at June 3, 2005 12:54 PM

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