The Economist has a front page article and an opinion piece (you may have to click through a commercial) about the world-wide housing bubble. If you don’t want to read all that text, they have purty pictures: a falling brick on the cover, a sandcastle being washed into the sea on the inside. Bubble, brick, castle made of sand: Even a five-year-old can understand what’s going on here. When people buy an investment based on the circular logic of: "It will go up, because it always has", you’ve pretty much got a textbook bubble. Or brick. What have you.
Here’s the dire warning from the accompanying opinion piece:
This boom isunprecedented in terms of both the number of countries involved and therecord size of house-price gains. Measured by the increase in assetvalues over the past five years, the global housing boom is the biggestfinancial bubble in history (see article). The bigger the boom, the bigger the eventual bust. [my emphasis]
And in Massachusetts, we’re one of the epicenters. If and when — and I think it’s when — the bubble bursts, there’s going to be a lot of wealth that’s destroyed and tax base that evaporates. Not good, but on the other hand, no one’s just entitled to 10%+ annual appreciation on their investment, so for current homeowners, perhaps there are worse things that could happen. Unlike tech stocks or tulips, housing has inherent value, and folks can usually stay put instead of selling. And perhaps we’ll be able to lure more young people and employers to the area if housing costs come back down to earth. And perhaps there will be more disposable income freed up by lower housing costs: perhaps we’ll buy more lattes and less equity.
But really, it’s the folks who bought recently and are counting on their assets continuing to appreciate that are going to be in trouble. They often use risky mortgage products like adjustable-rate mortgages (here’s a sad story of that); interest-only loans; and "negative-amortization" loans, in which the buyer actually pays less than the interest due and counts on the appreciation outpacing the extra interest charges. All these innovative products have been called the "democratization of credit" … I sincerely hope it’s not just a bigger net for suckers.
In related news, foreclosures are up 27% this year in three MA counties:
The number of people undergoingforeclosure has been on the rise across Massachusetts. Foreclosurefilings are up across Middlesex, Norfolk, and Worcester counties…
Analysts attribute the rise in foreclosures to several factors,including sky-high housing prices, people buying houses beyond theirmeans, and job loss. Personal misfortunes such as illness, death, ordivorce can also be factors.
(This makes the bankruptcy bill that Congress recently passed all the more obscene.)
Is there a role for state and local governments to play in 1. making housing more affordable for everyone, 2. softening the landing for those who have taken bigger risks than they could handle, and 3. protecting the tax base? And how do we balance the need to preserve wealth with the desire to help younger (and less-rich) people get their own equity?
There is a theory* that marijuana leads to other drugs — that is, that few users of heroine, meth, etc. have not used pot first. If that’s the case, than keeping kids off of pot may also serve to keep them away from the more dangerous drugs.Then, there’s the commentary that white middle and upper class America (read: the politicians, their families, their actual communities, and their fundraisers) fear their own kids using pot, and so pour money and education in that direction — all the while cranking up sentances for drug crimes in the “bad” neighborhoods. Cynical? To be sure? Any evidence of this? Lots of circimstantial.No amount of “War on Drugs” will keep 100% of kids 100% drug free. It seems to me that the best bet to keep kids drugs free is to (i) give ’em something to do after school, and (ii) help ensure that there are fewer latch-key kids, and that those that are latch-key aren’t also alone at night or on weekends. Yip, that means we’ve got to work to solve poverty, reduce factors that lead to single parent homes, fund schools and after school programs, yadda yadda. Yet, it’s so much easier to sleep at night simply pouring money into “education” and bulking up inspections at the border. Bleh. * not like gravity or evolution are theories — far less certain than either
OK, so then the question is whether it’s something inherent about the qualities of marijuana that make other drugs attractive, or if there’s something else. I would suggest there are a number of confounding variables, for instance: 1. Marijuana is illegal, and if someone is willing to try one illegal drug, he /she may be more likely to try others, and 2. the government’s overheated, counter-intuitive and counter-empirical anti-pot hype seems to lead people to believe that they’re not credible regarding other drugs.
^ I think it has far more to do with risk aversion, even among those willing to take risks with health, law, etc.Smoking a single joint is cheaper, generally not as addictive, and far less likely to cause severe health problems than, say, doing a line of coke. So, if you were going to try a drug, which would you do?Once you’ve been smoking pot for a while, it becomes the “norm” and not considered risky — then you move on to the next “best” risk, where “best” is defined as the next thrill which you can afford financially, have accessibility to reasonably clear of the law, etc. It’s not the same drug for everybody, but it seems like a reasonable process.Consider this: if you were raised to believe that processed sugar, caffeine, PG-13 movies and swearwords were all wholly unacceptible, your first forray into “being bad” wouldn’t be pot. You’d head over to the movie theatre. Likewise, pot is the “safest” illegal drug, so its the one that people are likely to try first. Once they get comefortable with pot and it becomes the norm, then they’ll possibly move on to something else.
Oh, is that how all you old-hat lefty bloggers sound so much smarter than me? I knew there was a secret ingredient… đŸ˜‰
You crazy kids. Maijuana has no legitamate purpose.Except for lacing my angel dust with.
actually I lace my marijuana with dust
Thanks for that, Troll. It explains a lot đŸ˜€
This is your blog.This is your blog on drugs. [sizzle]Any questions?
Right on Charley.Question is, will pessimists like me and you be able to take advantage of the coming burst.
I agree with you; in fact, it makes sense that both sales and foreclosures would be up, because both reflect the current housing market (lots of sales because of low interest rates; inflated prices, leading to foreclosures).I don’t really understand why there would be so many foreclosures in the first place. This may be a naive question, but why wouldn’t you just sell your house before the bank foreclosed and you lost the money you’d already paid? It takes a few months before the bank forecloses, right?
^ If you lose your job, you’re hitting the streets, and you might get hired “any day now.” So, you tap your savings and try to fight off the creditors long enough to get back on your feet again. Selling your house is tough to do, and requires a substantial amount of time investment — time you’d rather spend either (a) looking for a job, or (b) working in your menial temp job while waiting for your opening to a stable job; either way, making money to help pay the bills, including mortgage.
You’re totally right, there isn’t any way to compare the two, I was wrong. One doesn’t relate to the other. I was tired when I wrote it.I’m not going to delete the post, I’ll just leave it up, and live in shame.(No, I’m not being sarcastic, even though it reads like it!)