Here are a few things that I keep in mind when trying to understand all the madness surrounding housing.
Part of what the Housing Boom did was create a greater gap between generations, economically speaking. In other words, those who have owned homes for a decade or more were made wealthier — at least temporarily, right? — by the boom. Many of them used their new equity wealth to move up and that has been a big factor in home prices.
During the boom, every homeowner became a speculator with fantastic leverage, and those who sold and moved up did some serious cashing in. Then there are those who inherited inflated real estate from their parents…
Also, I heard Henry Cisneros speak a few years back, and he made some interesting points. He pointed out that most of us middle class Americans look at housing prices and think in terms of “What will our one or two incomes buy?” Cisneros, who has been working for KB Home, stated that a great number of recent first time buyers are recent immigrants, many of whom buy as a family, pooling incomes and resources. We have this where we live: just across the street two Philippine brothers and their wives bought a big place. I count at least four incomes paying that mortgage, and the driveway is always full of cars. Maybe their visiting cousins kick in too?
The LA Times has an article today about banks offering special mortgages for people who want to buy second homes in partnership.
I believe in the bubble, but I also try to keep in mind that people really are incredibly motivated to buy homes.
