I saw the bubble in housing right after I bought my home in Redondo Beach, CA. We bought the house for $412K and just 1 year later it appraised for $597K. Of course, we cashed out and bought a couple of rentals in Las Vegas. This was 2001.
I began to fear the bubble would burst when Bush came out with his Advisory Panel on Tax Reform in 2005. http://www.taxreformpanel.gov/
In it they proposed permanent tax cuts, privitization of social security AND the elimination of the mortgage interest deduction for primary home owners. I thought if the mortgage interest deduction were to be eliminated, first there would be a deadline set (or grandfathering of loans prior to a set date – like with the change in bankruptcy law.
Then, there would be a surge of homebuying/refinancing as people try to get into the largest mortgage they could to secure their deduction before the deadline. There would be a boom and a catastrophic burst following as motivation for buying and incurring large mortgages would no longer be tax advantaged.
Well, the tax reform didn’t happen that way, but the credit crunch had the same effect. I did think something would happen just prior to the election. The writing was on the wall for a lot of things. The only head-scratcher for me is how much housing is blamed for the crunch when only 9% of all mortgage loans in 2006 were subprime and only 12% in 2007.
