Wednesday, August 24, 2005 bust echoes in nation's housing boom

Thursday's editorial from USA Today
In some parts of the country, it's hard to talk to a neighbor without the conversation turning to real estate prices — the house down the street that's on the market for twice what it went for in 2001, the friend who has made a fortune on the side buying and selling properties.

Sound familiar? A few years ago, the friend getting rich might have been a day trader rather than a condo flipper. And the surging prices were not in real estate but in stocks.

The Internet stock bubble ended badly. The same could happen, in slower motion, with housing prices.

A cooling of the real estate market is both desirable and essential, not only to make housing more affordable, but also to decrease the risk of a sudden downturn in the economy caused by a housing bust.

For the past several years, home prices have surged in select regions of the country, in part because developers, real estate brokers and mortgage lenders have spread the myth that they have nowhere to go but up. Small investors have put their money into real estate. Institutional investors have done the same, pouring cash into portfolios of loans, known as mortgage-backed securities. That has kept interest rates low and prompted banks to make riskier, more exotic loans.

Read the entire USA Today editorial at this link.

— The Boy in the Big Housing Bubble