The American Housing Bubble

It’s September 2005 and the Global Housing Bubble (GHB) continues expanding. However I don’t think you have to be Nostrodamus to predict that sooner or later, this bubble will burst. Then we will look back and say to ourselves “What were we thinking?”

Well, truth be told, we are thinking – but past success means alot more in the present than the future. Currently the future is very dim, and the ability to predict with any certainty makes one tend to not even try. After all, look at the past. We thought housing prices were overvalued when they were half what they are today, didn’t we? And look what happened.

The Past is real and to a great degree concrete. We lived it and know it – well, at least our faulty perception convinces us that we do. The Future, on the other hand, is as ethereal as a cloud.

Plus, we also take comfort in the Herd: “Everyone else is doing it. Can everyone else be similarly deluded?”

Well, yes they can. Buying Global Crossing at $200/share. Selling homes to buy a single Tulip bulb. History is peppered throughout with mass delusion of one type or another.

In addition, there are always Doom Sayers. “The End is Nigh”, “The bubble will collapse”, “Doom, Doom, Doom.” Most of the time these people are wrong and can be safely ignored. However when do you start listening to them?

Perhaps you never should – since broken clocks may be right twice a day but we don’t use them to tell time. More useful are predicators that have been tested by time and have worked in the past. All of these indicators point to a housing bubble – one that exists on a global scale.

So what have I done to prepare for the bursting of this Bubble?

First I have become extremely reluctant to move – which is easy because I can’t afford any of the houses that I like.

Second I continue to work down my indebtedness. I recently refinanced my home equity loan, but took less than the sum my bank was willing to lend me. Even if real estate values decline by as much as 40% I could still sell my home and walk away from it debt-free.

Third, I fought against the Bankruptcy Reform Act of 2005 sponsored by Delaware senators Joseph Biden and Tom Carper. I did everything I could as a private citizen – wrote letters to the editor, blogged about it, sent letters to and called the senators. I firmly believe that this law is the Smoot-Hawley of our time: it will turn a recession into a depression.

Beyond that? All I can do is continue doing what I do: work and provide for my family. Even there I have prepared for the future by supporting The Wife’s dream of becoming a doctor. I figure that in the event of a Depression Business Analysts won’t be needed, but Doctors will.

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