Saturday, June 25, 2005

Speculation on the Popping Bubble

I said it the other day, and now Fannie Mae's senior vice president for risk policy, Thomas Lawler, is saying it too. This from Marketwatch:

Lawler said a number of lending patterns over the past year are similar to those seen in the late 1980s, the "boom" of the most recent "boom/bust" cycle. Among those patterns are increased buying by investors, "unrealistically high consumer expectations" that home prices will rise, "creative, riskier financing" for homes and a higher share of adjustable-rate mortgages.

It's the flippers who will help flop this market. Consider this comment from Susan Bies, governor of the Federal Reserve, as quoted by Marketwatch:

"In the commercial and residential real estate sectors, we worry that borrowers could become increasingly speculative, buying beyond their means and hoping for asset price appreciation -- whether they are buying for their own use or strictly for the sake of investment," Bies told a bank group in South Carolina.

It's a situation that is both tragic for those who will undoubtedly get hurt in an avalanche, and those poor buyers who are stretching every last dollar while trying to meet our basic human need of housing. I keep using that language intentionally. Housing is a need, second only to food and water. Rental housing is housing, without a doubt, but it allows no security. Home ownership is a key to the success of society. People who own their homes care more about what occurs in the community. They're more likely to get involved. They run for office. They clean up their yards, streets and neighborhoods. They try to make their little piece of the world a better place. People who are driving up the cost of housing to satisfy their own selfish greed are profiting off the suffering of those who are being priced out. Meanwhile, our leaders stand by and watch it all and boast about how many people are becoming homeowners. They haven't a clue.