If the housing boom isn’t over, and by boom I mean prices in excess of value, and there is further to go up, doesn’t that mean it will be that much further to drop and it will take that much longer to get the market back to true value?
If speculators are still hopeful, can we have reached bottom? In other words, doesn’t the market have to flush them out to start back up for real?
I believe the likely scenario is a slow spiral with plenty of hiccups along the way.
What about the potential for banks to take depositors cheap capital and put it at risk due to the lack of direct oversight? If we had bank ratings like bond ratings, depositors would be compensated for the risk the bank was taking with their funds and when the bank was going to far, funds would leave creating a more self regulating risk scenario. Yes?
Housing in past times was a entity that was perfect for wealth building. It wasn’t liquid, so you couldn’t trade it. It wasn’t something that was priced easily or often, so you weren’t feeling the price movements, therefore we hold on through troubled times. It wasn’t something that was likely to go down in value over the long term, at least keep up with inflation. But perhaps more importantly, we all were highly leveraged. We went into the investment with only 20% equity and borrowed the rest. Plus adding the dividend of providing a place to live, Jackpot! The perfect investment, or close to it.
But now, we are too leveraged, instead of building equity, we are spending equity as if it were income, and perhaps worst of all, we are trying to buy and sell as if it were a liquid market with no sales or tax consequences.
Dr. Douglas Rice 