Date: Tuesday, May 17, 2005
Question: "Are these bubble symptoms? "
Higher prices, lower margins or down
payments, and everybody rushing to the same side of the market.
In the 1920's stock prices soared on highly
leveraged transactions. Margin requirements of 10 percent down
frequently fueled buying frenzy. Fast forward to the present.
Residences can now be purchased with zero down, that's right, 0.00
% down, with hybrids requiring only interest only for the first few
years. While this has been explained away as enabling those people
who could not afford a home without these less onerous terms, the
bottom line is that they are buying properties with no cushion and
paying top dollar too. This type of financing can be more dangerous
than commodities trading where at least some performance bond is
required and positions are marked-to-market.
Party talk often relates stories of property
flippers who scored $50 thousand, $100 thousand or more on a
quick transaction. The housing market has morphed into a
speculative game. The only question is "Who is going to be left
standing when the music stops?"
A growing number of mortgages are for
second homes or "investment" properties. Condos are sold out
before a tenant moves in. That does not sound like buying shelter
but participating in speculation. Low interest rates sponsored the
demand and higher interest rates will eventually choke off that
demand. With a growing inventory of empty nests, something has to
give. Will it be the prices?
How does this impact your strategic
position? To discover more, click