Thursday, January 25, 2007

Economists are on Drugs

Not a week goes by without an economist or two predicting that the housing slump will end this year. Either they are paid by companies with financial interests in real estate (and want more positive news in the press) or the economists are simply on drugs. I say this because common sense says that the only way the housing slump will end is by interest rates dropping and/or by people getting larger raises (not the typical "keep up with inflation" raise). Houses aren't affordable. The last 2 years of the great housing boom was accomplished by lenders getting extremely creative with home loans. This was needed because interest rates were going up. The housing market finally hit a point that the creative loans couldn't sustain sales price growth. Most people couldn't afford a house, and many couldn't even afford a condo (or didn't have any interest in living in an overpriced condo). People looking to flip houses and people who actually want to live in a house are going to wait (mostly because they have no other choice) until prices are lower. That is reality. Until economists and housing market journalists discover this reality I suppose we will continue to read how "the housing slump will end this year."

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