Ridiculous Real Estate Run-up
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7/17/2007
I'm being run out of Boise, because the housing prices are so absurdly inflated relative to wages that I can't afford to purchase a home, even though I'm a college-educated engineering professional with several years of experience. I can't even qualify for a mortgage on a decent 3-bedroom home. So much for the American Dream. Real estate values have experienced double-digit growth for the past several years, while wages have stagnated. That's not healthy growth - healthy growth is sustainable and stable.
What we have here is real estate INFLATION caused by an absurd buying frenzy by out-of-staters (i.e. Californians), who are simply exporting the inflation so rampant in their own state, and locals who simply jump on the bandwagon to make a quick buck. This is not GROWTH. Politicians and realtors like to use words like "growth" and "appreciation" to put a positive spin on the issue. Well, I'm not afraid to call it what it is: rampant INFLATION in the real estate sector.
Every body knows that inflation is BAD. Inflation kills economies. Ask the Russians, or the Germans prior to WWII. That's why the Federal Reserve tries to control it so carefully in the US. But the Fed is dealing with national (average) inflation. It's fighting against the dwindling buying power of the dollar across the nation and across multiple markets.
Our problem is local, and mostly focused in a single market segment. Who's in charge of controlling this sort of inflation? I'll tell you who: educated buyers. If there weren't a bunch of idiots out there willing to pay ridiculous, exorbitant prices for a home, homes would be more reasonably priced. The problem is that there are more greedy idiots than there are intelligent, sensible people, so we have things like market bubbles and market crashes.
People pay "the going rate", blissfully assuming that the double-digit growth will continue. Besides, getting the loan was no problem, because irresponsible and "creative" practices in the lending industry (i.e. interest-only, adjustable-rate, and 40-year mortgages) provided just about anyone with enough rope to hang himself quite properly.
The prevailing logic said that the price of the home didn't really matter, as long as they could qualify for the loan. After all, they would always be able to sell it for more than they paid. That's not making a sensible purchase. That's market SPECULATION! No one stops to ask what a home is really "worth" anymore. They just buy it,
Joshua | Meridian, ID