The ongoing deabte between Bubbleheads (Of course there is a bubble) and Housingheads (bubble? What bubble? There is no a bubble!) has caused some serious exchange of insults (see craigslist.com housing forum). We need to keep this discussion civil.
While I am certainly a bubblehead, my blog certainly welcomes housingheads to come and post logical arguements why housing prices will continue to soar.
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There are three kinds of housingheads:
ReplyDelete1. Those who feed on the housing boom (RE agents)
2. Those who stand to lose if the bubble bust (recent home buyers)
3. Those who are clueless
Dave, a few "housinghead" thoughts, that I would like to see you and your readership address:
ReplyDelete1. If the bubble does pop, how loud will it be? Historically, I don't think that there has ever been more than a 10-15% annual drop in housing prices. So when you are talking about a "pop" do you mean (a) greater than 15% annual decline? (b) long flat period? (c) combination, other?
2. If you are not subject to a credit bubble (ie, you have a low fixed rate mortgage) and you plan to live in your home for more than 5 years, then realistically, aren't you insulated from a "pop"?
3. How much value should today's low interest rates be given when considering whether or not to purchase a home? What is the relationship to your bottom-line as a home owner of interest rate vs. home value.
Example. Which is a better "value" both in terms of your monthly payment and the acutual lifetime cost of the house:
a) Pre-pop (today)you buy a $500,000 home at a 30yr fixed rate mortgage of %5.5 today, or
b) Post-pop: you buy the same house at a %8.5 30yr fixted rate mortgage after the house devalues by 20% (which would be the worst decline in history) for $400,000?
You can obviously manipulate the percent of the decline and the increase in interest rate, but that should be the fundamental analysis when deciding whether or not to buy now or "post-pop". If there is a pop, interest rates will likely be one of the causes and will be much higher than today's rates.