Monday, October 10, 2005

James Kunstler: On the Housing Bubble

At the 'PetroCollapse Conference' in NYC on October 5th James Kunstler had these remarks. Here are a few selected quotes:
We face a crisis in practical living arrangements as the infrastructure of suburbia becomes hopelessly unaffordable to run. How will fill our gas tanks to make those long commutes? How will we heat the 3500 square foot homes that people are already in? How will we run the yellow school bus fleets? How will we heat the schools?

What will happen to the economy connected with the easy motoring utopia - the building of ever more McHouses, WalMarts, office parks, and Pizza Huts? Over the past thirty days, with gasoline prices ratcheting above $3 a gallon, individuals all over America are deciding not to buy that new house in Partridge Acres, 34 miles from Dallas (or Minneapolis, or Denver, or Boston). Those individual choices will soon add up, and an economy addicted to that activity will be in trouble.

The housing bubble has virtually become our economy. Subtract it from everything else and there's not much left besides haircutting, fried chicken, and open heart surgery.

And, of course, as the housing bubble deflates, the magical mortgage machinery spinning off a fabulous stream of hallucinated credit, to be re-packaged as tradable debt, will also stop flowing into the finance sector. ....

Another obstacle to clear thinking I refer to as the Las Vegas-i-zation of the American mind. The ethos of gambling is based on a particular idea: the belief that it is possible to get something for nothing. The psychology of unearned riches. This idea has now insidiously crept out of the casinos and spread far-and-wide and lodged itself in every corner of our lives. It's there in the interest-only, no down payment, quarter million-dollar mortgages given to people with no record of ever paying back a loan. It's there in the grade inflation of the ivy league colleges where everybody gets As and Bs regardless of performance. It's in the rap videos of young men flashing 10,000-dollar watches acquired by making up nursery rhymes about gangster life - and in the taboos that prevent us from even talking about that. It's in the suburbanite's sense of entitlement to a supposedly non-negotiable easy motoring existence.

The idea that it's possible to get something for nothing is alive and rampant among those who think we can run the interstate highway system and Walt Disney World on bio-diesel or solar power.

People who believe that it is possible to get something for nothing have trouble living in a reality-based community
James Kunstler is an "American author and social critic .Kunstler has been an outspoken critic of suburbia, urban development trends throughout the US, and the "American Way of Life", and has been a leading proponent of the New Urbanism movement. ( Wikipedia.org)

6 comments:

  1. Kunstler is great. At the very least he is entertaining. I hope he is not totally correct. I hope.

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  2. One needs to be careful with Kunstler. He can spout things that are false. He also exagerates.

    Most of his ideas have much validity.

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  3. Well, he's right on the money about the fact that most people think they can get something for nothing.

    I can't tell you how many buyers there are that think, simply because a house had been repossessed, they can buy it for $20,000 or $30,000 below list price. So they come in with this riduculous low-ball offer that's more often than not rejected. But even when the mortgage company responds by coming down a little, these buyers play this stupid penny-ante game of going up a little and trying to get the mortgage company to come down even more. And while they're playing this stupid little game someone comes in with a serious offer and buys the house right out from under them.

    We listed and sold 91 repossessed homes last year. Want to know how many sold for more than $1500 below list price? One.

    Anyway, this is how I think this house bubble is going to play out. There are going to be foreclosures across the board, lots and lots of them. House prices are coming to come down to where they are more in line with affordibility. And the middle-income buyers who were priced out of the market are going to be able to purchase a nice, 2 or 3 year old home at a fair price.

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  4. that doesn't sound like an unreasonable thought... but why are there going to be foreclosures across the board?

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  5. Because of the high number of buyers who purchased homes on no down payment, no closing costs, "Smart Choice" interest only loans.

    Because buyers listened to mortgage brokers who talked them into taking more out on a loan than the houses they were buying were worth, for a substantial fee I might add.

    Then when these buyers began to feel the crunch, they found out they couldn't sell their houses because they owed too much money on them.

    That's why.

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  6. I had a Kunstler moment the other day. I live in an apartment where utilities are included in the rent.

    Just got a note from the owners, given to everyone in the building. Please conserve heat, leave windows open to let in sun, don't leave hot water running, etc. Natural gas costs up 100% recently.

    Won't affect me this winter, as I already conserve when I can and my utilities are part of contracted rent. But I would expect a big rent increase when I renew next year. Of course people in houses will have it even worse.

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