Joe,
I just read your article ("There is Always Treasure in Rome") on the housing prices and the delusions people harbor and I find it very accurate describing my old neighborhood. I sold my house in the far outer reaches of Los Angeles County a few months ago and moved to the Mid-West, paid cash for the new house and with any luck or barring an extreme case of stupidity on my part, I won't ever have to worry about losing my house. When I sold the house in California, sales had just started to slow down in a dramatic way, homeowners were listing there houses for what people sold for last year and the buyers weren't showing up in droves like they did. Instead of selling within a few weeks, houses were sitting on the market for months with no or low-ball offers. The sellers were not getting the hint.
When I listed my house I was in a very bad position -- a job loss and a parent who needed help forced me into foreclosure and with no real back up funds, I had no choice to either sell or have sold out from under me and losing quite a bit of equity. Since I had been following the housing market, I realized that the bubble had either burst or was deflating rapidly and I had to under price my house so it would sell immediately. Fortunately I found a real estate agent who would work with me. She gave me comps for the local area and I wound up listing for $20,000 under last year's high price. The strategy worked. From the listing to final acceptance of an offer took nine days. However, I think the buyers got in over their heads. They took out 100% financing and the prices are still going down. In the few months since I sold prices have dropped 3% and shows no signs of bottoming out.
I guess what I'm trying to say in a long winded way is that some people are getting in over what they can afford, thinking that the price will continue the rise as they have for the past several years so they take out 100% interest only mortgages with resets in two years. Then they are either shocked that the house drops in value and they can't refinance to a fixed rate or they get notice of the payment reset they have no chance in hell of affording on a monthly basis and wind up losing the house to foreclosure. I have no idea where these people are going to live afterward as their credit will be ruined and it's hard to rent with bad credit, but I wish them all the luck they can get.
I fear that things are going to get very bad in many of the high priced boom areas with price resets, foreclosures, job layoffs in the housing industry. Which will lead to further layoffs when those people stop all excess spending. This is going to lead to a huge disruption to our economy which will take many years to recover from. While I don't see Great Depression II, I also don't see much growth from at least another decade.
Anna
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Anna,
I'm seeing it the same way you are. Let me go off on a tangent here....
I've come to the conclusion that people cannot see what is coming or indeed has already happened because they are isolated inside their homes with their goods and services. They have no reason to believe the world outside can and does affect them. Conditioning and physical environment will dominate reason every time, not to mention that it will absorb all mental and physical energies just dealing with day to day life with such materially focused lives. "Busy, busy, busy ... gotta pay the cable bill, get the car washed, haul the kids to to the swimming meet, mail the NetFlix disc back ..."
The average American honestly has no observable reason to doubt the world as it is presented to them through consumer conditioning and media. In that sense it is a spell. A state of consciousness.
"After all, the economy has never collapsed before, has it?" they ask themselves. "The stores are always stocked aren't they?" "I can just put this on the credit card until I get my tax refund. If it gets real bad I can refinance again."
And most of all, television advertising portrays an America where everything is OK. People have no idea how neurologically defenseless they are against the images television injects at the brain stem, and how it instantly becomes an operative reality, even though the conscious self says, "Yes, I know those are just actors and that is just an advertisement."
Unfortunately, the spell can only be broken by a dramatic change in physical environment and conditions. I suspect losing one's home and its attending spell inducing goods and services and being out on the street will do the trick.
On the other hand, I've watched people have to move back in with their parents, and ya know what? The spell continues!
Larger economic and political forces present themselves to captive consumers in much the same fashion that our human motions do to goldfish in a bowl. They can never be physically touched, and therefore are never exactly real. Sometimes they scare you, but always they have fed you. But ultimately, the consumer state goldlfish have absolutely no concept of anything beyond the few quarts of environment they are allowed by capitalism's sharks. And never will.
Personally, I'd rather swim in the sea, not the fishbowl, and take my chances at outrunning the very real sharks on the world's turf. Freedom is possible. But it requires one hell of a leap, then a whole lot of hard swimming against the system.
An old fish swimming hard toward the sea,
Your friend,
Joe
