Many of the sob stories in the mainstream media have been focused on what are characterized as "responsible homeowners" who are in danger of losing their homes. Several articles of this type have been posted here, and many commenters have noted the extravagances and poor decisions that often make these homeowners look less than completely responsible. Let's be clear about one thing: Responsible homeowners are NOT losing their homes. To see the truth in this statement, one needs to have a clear definition of "responsible homeowner." A "responsible homeowner" is a buyer who, if they utilized financing, did not stray from the conservative parameters set forth by lenders (prior to the bubble) and financial planners. This includes using a maximum…[READ MORE]

Japan simultaneously inflated massive financial bubbles in real estate and stocks during the late 1980s. The slow deflation of this bubble and the general economic malaise that impacted Japan during the years that followed became known as the "Lost Decade." The United States is facing a similar set of circumstances in the aftermath of the Great Housing Bubble. So far, we have been following the same policy actions as the Japanese did. Perhaps our officials have come to believe a Lost Decade is preferable to the next Great Depression. Today, I want to demonstrate how easy it would be to have a similar result in our own housing market. By lowering interest rates to artificially low levels, the Federal Reserve…[READ MORE]

The obsession we have in California with picking market bottoms is an unusual but necessary function of the extreme volatility in our real estate market.  When prices are extremely volatile, as they are here in California, proper timing of a real estate purchase is very important. However, if markets were to stabilize and remain stable, picking a bottom would be unimportant. Stable markets are always at the bottom. A stable market, a market that is at the bottom, is a combination of psychological and technical factors. Psychologically, in a stable market, there is an absence of belief in appreciation. When people believe prices are going to rise significantly (faster than wages or other investments), markets become unstable because people buy…[READ MORE]

Flying high is dangerous; just ask Icarus. Everybody was flying high on free money but they got too close to the sun and got burnt. When they fell back to earth, their impact created a debt crater that the rest of us are being asked to fill in. Borrowers took on enormous risks during The Great Housing Bubble. If this were not the case, we would not now be facing a foreclosure crisis that eclipses the magnitude of the Great Depression. As a society we need to accurately identify the risks assumed by borrowers that caused them to lose their homes. We must enact legislation that limits or reduces these risks in the future. We need to do this for…[READ MORE]