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August 3, 2004

Wait to Buy the House

My man, Dean Baker, lets it fly again; his article, Too Much Bubbly at the Fed?, tells why the recent run-up in housing prices cannot be explained by "quality improvements," but is actually a large bubble waiting to pop. Remember how the stock market popped? See where we are today because of that? Now consider the impact of the housing bubble may be worse. The people who are worst off because of this are folks with variable-rate mortgages who recently bought the most expensive home they could afford as an "investment"; rates are about to go up-up-up, housing prices are going to go down-down-down, soon these homes will be worth less than the mortgages, meanwhile the monthly mortgage payments will no longer be affordable. A home is always a good investment, even with a large mortgage, because housing prices always go up and give you instant equity, right? Unfortunately not in this case. New Yorkers, the Northeast appears hardest hit with prices 1995-2004 up 60% over the Consumer Price Index for the same period. Okay, good, I got my technical meanderings out of the way today so I can go post on D's blog now...