Bubble Links

I have been busy the past two days with buyers and a new listing or two … here are a couple of good bubble links …

Realestatejournal
NYTimes – thanks to Curbed for the heads-up (registration required) – go here for a password.
“So far, the mortgage-backed market has generated cash and profits galore. Someday, however, someone will lose money. No one knows who, when or how much because housing has never been so frothy, risky mortgages so ubiquitous or the market in which they trade so vast.” That said, the industry should still be regulated somehow, someway.

Volokh – The concern, as I understand it, is that people who have interest-only loans (for instance) are going to be hurt if home prices fall (although it is not clear why they would, if everyone is adopting the new mortgages–but I digress). The idea is that if housing prices fall, and if they have to sell their house, they will be forced to come up with a big wad of cash to make up for the shortfall. And so these exotic mortgages are said to be “bad.” Now here’s what I don’t get:

This is a good read, albeit quite long.

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2 Comments

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  2. Don Morgan September 7, 2005 at 10:12

    I agree. It’s all in how you use it. If you use the “exotic mortgage” as it is so referred to even though it’s been around as long as the “traditional mortgage”, as a speculative tool to purchase a home far beyond your financial means, you are, in my opinion, a somewhat foolish risk-taker. However, if you use your home as an investment tool to diversify your financial strategies and recapture lost “opportunity cost” from idle equity, then you are smarter than the average person and deserve your reward.

    Figure out what you can afford on a monthly basis in principal and interest on a traditional mortgage. Then purchase a home in that value range using the “exotic mortgage”. Invest the difference in a sound, diversified investment portfolio and let the difference grow. Run the numbers and you’ll be surprised at how much wealth this can generate over the long-term.

    It all comes down to just using your head and thinking for yourself as to what makes sense and what doesn’t.