Archive for May, 2007

Preserving_the_American_DreamSo, bye-bye, Miss American Pie Drove my Chevy to the levee But the levee was dry And them good old boys were drinkin' whiskey and rye Singin' this'll be the day that I die This'll be the day that I die Don McLean - American Pie One of the hallmarks of a great song is its ability to be interpreted in different ways. American Pie is an allegory of our times, an ode to the death of our housing market. With leverage drying up, the party is over. The last drink is for the death of the market itself, and with it's death, the death of the American Dream of home ownership for thousands of overextended homedebtors. When a bubble in a financial market pops, it doesn't explode in spectacular fashion like a soap bubble, it is more comparable to a breached levee which releases water slowly at first.[READ MORE]

oh_noo_koolaidFinancial markets represent the collective result of individual actions. To fully understand how our current housing bubble was inflated, one needs to understand how the actions of the individual market participants impacted house prices. In my last analysis post, Your Buyer’s Loan Terms, I discussed future interest rates and debt-to-income ratios and their impact on future housing prices. In that post, I made a blanket assumption that interest-only and negative amortization loans will simply not be available in the future. It is a debatable assumption. In this post, I want to show more clearly how these two loan types created this bubble and why I believe they will not be available in the future. In short, I will describe the anatomy of a credit bubble. To illustrate how this loosening and tightening of credit[READ MORE]

bring_back_ the_bubbleOver the last several years, buyers have not concerned themselves with the day they were going to become sellers. Why would they? There was an endless demand for properties, and buyers were going to pay whatever was asked. Those days are gone. They are not coming back any time soon. In one of my first posts, I talked about Financially Conservative Home Financing. There has been much discussion on these boards about the high debt-to-income ratios and adjustable rate mortgage terms now required if you chose to buy in today's market. For anyone considering buying a home right now, I would like you to think about the buyer who is going to buy your home from you at some point in the future, and more specifically, what debt-to-income ratio and loan terms[READ MORE]

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