- At the same time we in America
are experiencing record deficits and
overwhelming debt, there is a coexistent housing
bubble. A result of a seller's market in
housing, this current real-estate market bubble
is unsustainable, and could result in the
ruination of many millions of American families,
if they are caught with a mortgage debt that
they cannot pay off when the inevitable market
crash occurs. If any Federal Reserve member bank
is caught in a downward spiral toward
bankruptcy, it is logical that they will make a
move to call in all their outstanding loans,
including home mortgages. Please take notice
that I said WHEN and not IF this crash occurs.
My reasoning will be stated below, and is the
result of my own examination of current market
indicators.
-
- A recent eight-page article in
the June 13, 2005 issue of Time magazine
referred to a "blistering real-estate market"
and spoke of how "record home prices are
inflaming passions." The article referred to
several people who had admittedly made a tidy
profit in cities such as Boston, Chicago,
Indianapolis, Miami, and Washington, DC. In
Boston, for example, prices have risen so
dramatically, that the median-priced home now
sells for a $2,079 monthly mortgage payment.
-
- In Chicago, a housing study by
Dartmouth professor of real-estate John Vogel,
Jr. revealed that in two apartment buildings
built only four years ago, condo rentals were
$1,800 per month and one could purchase one of
those condos for $270,000. In 2005, only four
years later, the prices in this same set of
buildings have reflected the unusual aspects of
the housing bubble, where the cost of purchasing
a condo has risen to $450,000. However, the
rental price of these condos has remained
reasonable, falling by $100 to $1,700 per month.
In fact, in the past year, 25 of the 50 states
plus Washington, DC have seen double-digit
appreciation in the prices of houses for sale.
-
- In every sense of the word, this
is a seller's market...
-
- Large global multi-billion
dollar mass media companies such as AOL
Time-Warner spend loads of effort on how to
extract the maximum psychological advantage from
everything they present to the mass population.
In the June 13, 2005 Time magazine article
entitled 'America's House Party,' there were
constant references to this great big party in
which the reader was a fool by not
participating. The article listed seven people
in just one block in Chicago, North Wood Street,
who had seen dramatic appreciation in the value
of their properties:
-
- * 1745 North Wood Street 72
year-old Jean Kieres purchased her home in 1958
for $22,000 -- and has since seen its' value
rise to $700,000.
-
- * 1744 North Wood Street Bruce
Fischer, 60 years-old, purchased his 100
year-old home in 1992 for $90,000 -- and has
since seen its' value increase to $700,000. He
was described as having "used his home as a
piggy bank," by taking out a $200,000
home-equity loan. This home-equity loan had
removed approximately $420,174 of his accrued
equity, placing it in the hands of his lending
bank. By the time all factors were considered,
Mr. Fischer came out with negative equity in his
home.
-
- * 1731 North Wood Street Jeff
Bruce's house had changed hands three times in
nine years. Daniel Cooper paid $312,000 in 1996,
Charles Ehle paid $350,000 for it in 1998, and
Jeff Bruce paid $580,000 in 2003. By 2005, the
home had become worth $640,000.
-
- * 1715 North Wood Street
Courtney Lance had seen her property tax explode
in the decade between 1992 and 2002, an
elevenfold increase. In 1992, her property tax
was only $483. By 2002, it had increased to
$5,600. Calling it "Highway robbery," she sold
it in 2002, and today's owner pays $6,930 per
year in property taxes.
-
- Is this 'House Party' one to
which you and I have been invited?
-
- In my area of the country,
housing values have already begun to decrease --
with my own home worth approximately $10,000
less than what I paid for it only seven years
ago. Let's face the facts; housing prices only
increase in areas in which many more people
desire to live there, than there are available
homes to accommodate them all. Even with my home
worth approximately ten percent less than it was
when I purchased it in 1998, my property taxes
have continued to increase. In fact, they have
increased each of the seven years in which I
have lived in this house. With the current
problems involving a $400 million-dollar budget
deficit here in both the city of Buffalo, New
York USA and Erie County, I am expecting my
property taxes to double by the time this crisis
will have been resolved.
-
- According to the National
Association of Realtors, the median price for a
home in the United States has now risen to
$206,000 -- up 15% in the past year alone, and
up 55% in the past five years. Economists have
compared this run-up to be similar to what
happened in the 1990's tech boom that occurred
in the NASDAQ stock market. Have Americans
learned anything from that market crash, which
removed six-trillion dollars from the wealth of
the American middle class, and transferred it to
the increasing wealth of those in the elite
upper 1% of all wage earners? That is what these
self-generated market crashes are designed to do
-- and every indication sees the housing market
as the next market sector to crash.
-
- HOME MORTGAGE EQUALS DEFICIT
SPENDING:
-
- In 1966, before he became
involved in the Federal Reserve Banking scam,
Alan Greenspan admitted that "deficit spending
is simply a scheme for the confiscation of
wealth." This is what is going on with the
housing boom -- and the techniques employed are
remarkably similar to the shenanigans that
brought down the NASDAQ stock market in the
spring of 2000. Anyone involving themselves in a
home mortgage is paying more than FIFTEEN TIMES
the stated interest-rate printed upon the
mortgage contract. This is deficit spending --
because the mortgage holder is paying much more
than the actual market-value of the home -- by
the time all the interest-compounding is
computed on the 360 payments (12 months x 30
years = 360 total payments) required to retire
the mortgage at the end of those thirty long
years.
-
- Let's take a look at one of the
examples above, in which the homeowner saw his
home increase in market-value by a factor of
seven, while a home-equity loan transferred
every penny of the accrued equity back into the
hands of the bank, leaving him with negative
equity in his home. The person named above to
whom I refer is 60 year-old Bruce Fischer. Mr.
Fischer paid $90,000 for his home in 1992, when
the 30-year fixed-rate mortgage was between 8%
and 8.5%. Since then, his home has increased to
its' current value of $700,000.
-
- This represents an increase of
$610,000 -- at least one would think so.
-
- However, Mr. Fischer did an
extremely foolish thing. He took out a
home-equity loan, valued at $200,000.
Home-equity loans are never a good idea, as they
truly are confiscation of wealth, as Alan
Greenspan himself pointed out in 1966, many
years before he became involved in the federal
Reserve as the Chairman of the Federal Reserve
Board. This $200,000 withdrawal decreases Mr.
Fischer's profit to a level of $410,000.
However, with this home equity loan being at
least 5.75% -- this actually puts him in a
negative equity situation. This home-equity loan
being at least 5.75% costs Mr. Fischer $420,174
-- with a monthly payment of $1,167.15. By the
time Mr. Fischer walked out of that bank with a
home-equity loan in his pocket, he was a minimum
of $10,174 in debt -- with 100% of his equity
transferred into the hands of whatever bank he
used to make the transaction. Let us also not
forget this man is sixty years-old, and most
likely he will never live to pay that last 360th
payment.
-
- How this does NOT violate
TRUTH-IN-LENDING laws, I will never understand.
-
- Some of the prices quoted in the
Time magazine article were simply outrageous.
The average price for an apartment (not a condo)
in Manhattan now costs more than $1 million
dollars. As previously mentioned, the median
price of a home in the USA is now $206,000 --
which has increased by 55% in just the past five
years alone. A recent study found that Los
Angeles homeowners believe that their homes will
increase in value by 22% each year for the next
decade. This expectation is simply out of touch
with reality, but nonetheless David Lereah,
chief economist for the National Association of
Realtors, forecasts another record-breaking year
for 2005 -- with property values rising by 9%
across the board.
-
- Housing now accounts for a full
25% of the nation's Gross Domestic Product,
which places an inordinate amount of pressure on
this single sector of the economy to keep the
entire economy afloat. The importance of housing
and real estate sales is reflected in how often
it is mentioned in the financial news -- where
housing starts and real estate sales are
frequently mentioned in their reporting. 32% of
all household spending is on housing -- and this
is what makes it so important and vital to our
nation's economy. Therefore, it is axiomatic
that when (and not if) the housing and real
estate sector collapses -- it will bring great
harm to the entire U.S. economy.
-
- HOW RIPE IS HOUSING FOR A FALL?
-
- While it is certainly true that
home-mortgage interest rates have fallen
approximately 40% between 1990 and 2004 -- most
people simply have no capacity to understand
that low interest-rates have been used to pitch
home-equity loans "near zero percent," as most
local banks prepared for a very callous game of
financial bait-and-switch. And as the Time
article mentioned, "Your house is now your piggy
bank, ATM and 401(k)." The article dangles the
idea of home-equity loans as a manner in which
to "take out some cash to put your kids through
college." While the author of this article makes
statements like the following: "Folks brag about
having bought their home in the 90's the way
they used to brag about having bought Microsoft
[stock] in the 80's." --- nothing is ever said
about the negative consequences to the borrower.
-
- And, what are the proceeds from
these home-equity loans spent on?
-
- In 2004, U.S. homeowners took
out $139 billion dollars of their equity -- up
from only $26 billion dollars just five years
ago, according to Freddie Mac. This shows that
the banking television and mass media marketing
campaigns supporting home-equity borrowing are
effective. Of the proceeds from such loans; 35%
went into home improvements, and retail chains
like Home Depot and Lowe's have profited
tremendously from this remodeling. 16% went
toward making further consumer retail purchases,
and used 26% to pay off preexisting debt -- such
as credit cards, and still more consumer retail
purchases, according to Federal Reserve
statistics.
-
- Such mainstream press reporting
never mentions anything about the true effects
to the person borrowing the money. Most people
never fully understand what it is in which they
are truly involving themselves. So, to provide
that service to my readers, let us take a deeper
look at the housing statistics as presented in
the Time magazine article -- which represent the
years of 1990-2004:
-
- * The 30-year fixed-rate
mortgage interest-rate fell from 10% in 1990, to
5.75% by 2005.
-
- * The median (in the exact
middle of all possible prices) price of homes
more than doubled, from $98,000 in 1990 to
$206,000 by 2005.
-
- * The increase in the number of
people buying a second home more than doubled
during this time period of 1990-2004.
-
- * Homeowners' equity rose from
$4 trillion in 1990, to $10 trillion by 2004.
-
- But now, people are taking more
risks in their financial investments:
-
- * The number of adjustable-rate
loans rose from 10% of all mortgages in 1990, to
33% of all mortgages by 2004.
-
- * The number of homeowners who
are reducing their equity stake in their home
via home-equity loans, has increased from $225
billion dollars of such loansin 1990, to almost
$900 billion dollars of such loans by 2004. This
represents fourfold increase in home-equity
loans.
-
- * The widespread use of such
loans has increased total household debt by an
enormous amount. In 1990, home-mortgage debt was
$2.25 trillion dollars. By 2004, this amount had
risen to $8 trillion dollars. This represents
more than a threefoldincrease in such debt.
-
- * The foreclosure rate has
increased from 1% in 1990, to 2.5% in 2004. When
those making late payments on existing
home-mortgage loans are considered, this figure
jumps to 10%.
-
- * With credit-card debt now at
$2 trillion dollars, and current home-mortgage
debt at $8 trillion dollars, the total of $10
trillion dollars completely cancels out the
above-referenced $10 trillion dollars of
homeowners' equity.
-
- This is how the game is rigged
-- they may give it to you in some way -- but
they make sure they get it back some other way.
Here the PLUS was the tremendous increase in the
value of homes, and the MINUS was the equal
amount of consumer debt that was created by the
consumer society we have been manipulated into
becoming. This is a party to which you and I
aren't even getting a seat at the kiddies'
card-table -- let alone a spot in the receiving
line! If you have ever wondered how someone can
work their entire adult life, and get virtually
nowhere, think of how the imbalanced scales of
this example show how one hand takes from the
other, and the whole time our typical American
was ruminating on whether his favorite team
would finally win the 'big-game' this season!
-
- They spellbind society with
distraction after distraction -- and in plain
sight -- they talk in coded messages -- which
are the seemingly inexplicable statements that
certain politicos make to the press. For
example, Federal Reserve Board Chairman Alan
Greenspan has warned about "froth" in the
housing market, and mentioned the "irrational
exuberance" of years' past. For those who
understand the nomenclature of macroeconomics,
Alan Greenspan is telling us that the housing
market is overextended, with a possibility of
behavior like the 1990's tech boom. In other
words, Alan Greenspan is warning of the
impending crash of the housing and real-estate
sector of the U.S. economy.
-
- I also choose to remind you of
Alan Greenspan's comments as part of his
semi-annual report to Congress, which took place
on February 18, 2005:
-
- "Several important economic
challenges confront policy makers in the years
ahead. Prominent among these challenges in the
United States is the pressing need to maintain
the flexibility of our economic and financial
system."
-
- When we look deeper into the
statement above, we come to realize that what
Alan Greenspan is talking about is the
increasing difficulty in keeping the entire
Federal Reserve banking system afloat -- amid a
collapsing dollar, burgeoning trade and budget
deficits, rising unemployment, and
interest-rates that are getting ready to
skyrocket towards levels not seen since 1980,
when they were a staggering 18%. Remember that
this whole system will correct itself in the
end, but there is concern as to whether we will
make it through this crisis.
-
- The Time magazine article did
point out one problematic aspect of the current
housing and real-estate bubble:
-
- "There are troubling aspects to
the real-estate boom. At the stock market's
peak, 1% of investors controlled about 33.5% of
stock wealth; the top 1% of home-equity holders
have only 13% of housing wealth. In other words,
a broad drop in home values, should it happen,
would affect a far larger cross section of
Americans than did the NASDAQ bust."
-
- The NASDAQ bust stole $6
trillion dollars from the middle-class -- with
some having lost their entire life-savings. The
real-estate bust could turn out three times
greater than the NASDAQ crash of the spring of
2000. Therefore, it is important to keep that
party going, and to keep that house of cards
from falling in on itself.
-
- In the Time magazine article,
there was a single line that read almost like it
did not belong. However, I immediately
recognized that it was a coded reference to the
crash of the hedge-fund market, which has been
precipitated by the bankruptcy of General Motors
and the severe money problems of Ford Motor
Company:
-
- "California's $186 billion state
pension fund is worried enough to have begun
unloading some of its' real estate holdings."
-
- This is a very worrisome
statement, because when one starts hearing of
problems related to state, federal, or union
pension funds -- this means that there are
troubles with the holdings of these funds. For
example, when General Motors fell into
bankruptcy and seen their stock rated at junk
status, such pension funds were then forced to
sell of their holdings in the troubled
companies. And, both GM and FORD are held by
many such pension funds in all levels of
society.
-
- THE BOTTOM LINE IS THIS...
-
- Edward Leamer, economist and
director of UCLA Anderson Forecast, has many
worries about the current housing bubble, which
he claims is in already turbulent waters. "We've
had a more than doubling of housing prices in
the past three years here in Southern
California. For instance, there is no
fundamental driving it," he was recently quoted.
"There isn't some big crush of people coming to
California. That's ridiculous."
-
- When the time comes that we see
banks ready to collapse because of the final
destruction of what little is left of the
American economy, we will certainly see these
same banks begin to call in all types of
outstanding loans. They will need to do this to
stay liquid themselves, and a home-mortgage
holder may find themselves with a letter
demanding full repayment of the total
outstanding balance within sixty to ninety days.
When we find ourselves at that point, it appears
that many millions of people will see their
homes being foreclosed, all because they were
unable to write a check for $100,000 or more.
-
- Is renting an option, in the
above scenario?
-
- I had stated in the summer of
2000 that I saw a future with multiple families
living in one house. This was after the big
financial meltdown in the NASDAQ stock market,
which devastated all but those who were prepared
for the emergency. The coming financial problems
are going to be many orders of magnitude worse
that what America experienced during the years
of 1929-1934. For those readers with a sharp eye
and an even-sharper mind -- with the onslaught
of each new problem in this country -- we see
larger and larger price-tags associated to the
events. While none of the expert economists can
agree on WHEN the housing and real-estate market
will collapse -- they are in agreement that it
WILL happen. What we all can do for ourselves at
this point, is minimize the damage that will
befall us when the time comes for the U.S. to
finally pay the piper -- a payment that is
seriously overdue.
-
- SOURCES:
-
- The following sources were used
in the writing of this Kentroversy Paper:
-
- Bentkowski, Kent Daniel Will You
Survive The Coming Financial Crash? (PDF), June
2, 2005 http://www.rense.com/general65/Coming_Financial_Crash.pdf
-
- Bureau of Labor Statistics
http://www.bls.gov
-
- Designed To Sell (HGTV) -
http://www.hgtv.ca/tv/shows/show_details.asp?showID=83466
-
- Domainia.com Check home values
and selling prices across the USA.
-
- Extreme Makeover: Home Edition
(ABC-TV) http://abc.go.com/primetime/xtremehome/
-
- Fannie Mae http://www.mbaonline.com/resources/fannie-mae/
-
- Federal Reserve Banking System http://www.federalreserve.gov
-
- Freddie Mac http://www.freddiemac.com
-
- Mortgage Bankers Association http://www.mbaa.org
-
- Mortgage Calculator (Simple) http://www.mortgage-calc.com/mortgage/simple.php
-
- National Association of Realtors
http://www.realtor.org
-
- National Average Mortgage Rates
1990-2005 http://mortgage-x.com/general/historical_rates.asp
-
- Poniewozik, James America's
House Party, Time magazine, June 13, 2005, pgs.
16-24. http://www.time.com/time/business/article/0,8599,1069097,00.html?internalid=AMP
-
- Property Ladder (TLC) http://tlc.discovery.com/fansites/propertyladder/propertyladder.html
-
- Propertyshark.com Check Sales
and Foreclosures in America's Top Cities.
-
- Rich Dad, Poor Dad http://www.richdad.com/
-
- Sell This House (A & E) http://www.aetv.com/tv/shows/sell_this_house/
-
- © 2005 The Kentroversy
Papers http://kentroversypapers.blogspot.com
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