Thursday, August 24, 2006

Pop Goes The Bubble.

I mentioned unrealistic expectations in the form of home loans, sort of in passing, a few weeks ago. This week, there are all sorts of stories on the web about the coming collapse of the housing bubble. This one is very good, and has been linked by several other web sites.

This could have some serious ramifications for the economy in a very short period of time. Couple that with the huge deficits that the Federal Government is piling up and the amount of money we have essentially borrowed from Japan and China, we could be looking at a big time recession very soon. I have heard it said that the U.S. doesn’t make anything anymore to make our money. The way that Americans now make their money is by suing each other and by selling houses to each other. As soon as the value of housing starts going negative, watch out. This could be a big time slide down a steep slope.

I found these statistics very frightening indeed.

• 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000;

• 43% of first-time home buyers in 2005 put no money down;

• 15.2% of 2005 buyers owe at least 10% more than their home is worth (negative equity);

• 10% of all home owners with mortgages have no equity in their homes (zero equity);

• $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.


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