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Housing Predictions:

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Good Morning Middle America. I promised more predictions, so here we go.

 

As I watch even the most optimistic economists finally get around to having to admit that the U.S. is in recession, I listen closely to their excuses for being “so wrong for so long.”

 

After all, being wrong about something as serious as our floundering economy can’t simply be explained away by saying, “Hey, I’m an idiot.” Oh no, it’s the oil price that threw them. How could anyone have ever predicted that oil would go sky high? Well sure, they could have read a book on the subject sometime during the past 50 years. Or they could have reasoned the using 87,000,000 barrels of a finite resource daily could come with some problems,…no they couldn’t.

 

Remember when Alan “Cash” Greenspan and “Bronco” Ben Bernanke both said that housing would make a soft landing? That reminds me of the elderly lady who was exiting the plane after a terribly hard landing. When she passed the Captain who was sheepishly saying goodbye to everyone, she said, “Did we land or were we shot down?”

 

Housing was shot down. And, for the distant future, it will stay down. Here’s the problem. The price of housing went up like a rocket. Why? America needed an economy and housing was it. A person who had worked at McDonalds for two weeks could get a house on the buy now and pay later plan.

 

What goes up must come down, and housing made a spectacular decent. Ya see, residential housing is an impossible basis for a sustainable industry. Housing represents shelter and nothing more. I wrote an entire chapter in my book on this subject and predicted the fall of housing more than a year before it occurred.

 

There is a huge difference between a house, a home, and an investment. If a person thinks that a house represents a true investment, they should stay home and watch the money roll in. Some of those ditzy economists who insisted that due to rising home equities, Americans weren’t really experiencing negative savings over the past few years, have foreclosure signs in their yards also. In this case, it wasn’t oil at fault, it was the bank. Sure it was.

 

Some types of housing will never recover as reality creeps into even an economist’s life. Large, energy sucking, tax draining, maintenance monster homes will die a slow death along with their foolish owners or their foolish lenders in states that have non-recourse laws. Non recourse means that the lender can only go after the home and not any other assets that the borrower may have. If you wonder why the banks are writing off Billions, it is often due to non-recourse loans where the borrower had nothing down and nothing to lose.

 

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www.kingofsimple.com
Mike Folkerth is the author of "The Biggest Lie Ever Believed" and is not your run-of-the-mill author of finance and economics. The former real estate broker, developer, private real estate fund manager, auctioneer, Alaskan bush pilot, (more...)
 

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