Bill to kill $3M raises for Fannie, Freddie CEOs gains momentum

Bill to kill $3M raises for Fannie, Freddie CEOs gains momentum

Rep. Ed Royce-sponsored bill now has bipartisan support

First look: Architect Magazine showcases Fannnie Mae’s new corporate digs

It’s big and beautiful and it saves the GSE money

Fannie Mae: Mortgage lenders unnecessarily restrict credit

Higher credit scores, additional documentation most common
W S
The Ticker

Housing will crash again and here’s why

The imaginary perpetual motion machine of home equity

Housing bubble
/ Print / Reprints /
| Share More
/ Text Size+

The speculative excesses that inflated the previous housing bubble continue to feed the magical thinking, and to feed the housing bubble that will crash again, argues Charles Hughes Smith at Of Two Minds.

The global housing market has been dominated by magical thinking for the past 15 years. The magical thinking can be boiled down to this:

A person who buys a house for $50,000 will be able to sell the same house for $150,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $300,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $600,000 a few years later without adding any real-world value.

And so on, decade after decade and generation after generation: a house should magically accumulate enormous capital (home equity) without the owner having to do anything but pay the mortgage for a few years.

The capital isn't created by magic, of course: it's created by a greater fool paying a fortune for the house on the speculative confidence that an even greater fool will magically appear to pay an even greater fortune for the same house a few years hence.

This is the result of housing transmogrifying from shelter purchased to slowly build equity over a lifetime of labor into a speculative bet that credit bubbles will never pop. 

Source: Of Two Minds
Read full story

Recent Articles by Trey Garrison

Comments powered by Disqus