ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Monday, September 26, 2005

Stuffing Money Under the Mattress and Consequences Thereof

From Reuters:

"The national median home price rose to $220,000, up 15.8 percent from a year ago, the report showed. That was the largest annual increase in prices since July 1979."
I may be crazy, but with what is going on in the housing market, the incessant bidding war among buyers that is driving the price of housing to astronomical levels, looks to me like the behavior of folks expecting the next deluge and their house is their ark.

Is there anyone that thinks the intrinsic value of housing is actually rising at 700% the rate of inflation? Does that make sense to anyone? And if it does not make sense, just what is going on here and what are the likely consequences of this behavior?

I have a conservative bent (duh!), but my suspicion is that we may see something that makes the dotbomb look like a Sunday school picnic. This has been going on way too long. Something has to give.

What happens when a bank that is carrying on the books a property against which it has a mortgage for $500,000 and suddenly the property is worth say $400,000? Multiply that by thousands of such properties and loans. What are the bank examiners going to do when they look at the books? Does ANYONE remember the S&L crisis?

Our banking system is far more centralized then it used to be. The failure of one large bank in Chicago nearly brought the whole system down a number of years ago (the Feds bailed them out). What would happen if the behemoth in Charlotte failed? Or the big boys on Wall Street? I shudder at the thought. I have visions of Weimar Germany and wheel barrels full of money that is worth nothing.

Just a thought.

Have a peachy day and sleep well.

Your Co-Conspirator,
ARC: MontereyJohn