The Deadman Night Rider

A forum for evening students of the SMU Dedman School of Law and other outlaws..

Friday, March 21, 2008

Sanity returns??

I heard the most amazing thing on TV whiile I was getting ready for work this morning. The Today show had a financial planner on to answer e-mailed questions about retirement, family financial planning, etc. A couple wrote in that they were relocating to a new town for work, where they planned to be for no more than five years or so--they wanted some advice on the best financing tools for buying a new house there. You could have knocked me over with a feather when the lady said this: if you're only planning on being there for five years, I would seriously consider renting over buying.

What rank heresy is this?!? Did I just hear sound advice about residential real estate on the TV?

It seems that reality is starting to set in at all levels about just how foolishly we've acted for the last several years. Here's a snippet from one of today's op-eds in the Dallas Morning News about the housing market:

Who's to blame?

Who's not to blame? The mortgage brokers were out of control. Regulators were asleep. Homebuyers thought they were entitled to Corian counters and a two-story great room. Everybody from Norwegian town elders to financial geniuses decided that house prices would always go up. This was an episode of mass idiocy.

The writer (David Brooks) lists some stats:

Housing prices are off about 10 percent from their peak, and experts expect them to drop another 20 percent or so. Without policy changes, several million households will default on their mortgages over the next few years. Roughly 14 million homeowners will owe more than their houses are worth.

That means 14 million homeowners are going to learn a fundamental lesson: when you're upside down, you don't own the house--the house owns you.

While it's good to see commentators finally take a sober look at this situation, there are still a couple of conclusions that the articles I have seen so far have studiously avoiding facing:

1. We have sold houses to too many people who shouldn't have been in a house--any house--to begin with. We've got to shake this sentimental attitude that home ownership is some kind of silver bullet. It's not right for everybody, and if you look at the demographics, the number of people that it IS right for is declining every year.

2. As a result of #1, we have built too many houses. Even more than how we deal with the sub-prime mess, how badly we are overbuilt is what is ultimately going to determine if and when the housing market recovers.


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