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July 18, 2005
How a housing boom ends
From the NY Times:
But for other homeowners, the calculus of the 1990's that might have led them to trade up quickly no longer applies. "When the market was strong, somebody would move up to a nicer home in two years because they had so much equity," said Karen Snyder, an owner of Metro Brokers Right Realty in Centennial, a suburb southeast of Denver. Now, she said, "they're just staying put."
That really encapsulates what seems to have driven the housing market in the frothy areas. Buy a $100,000 house with 10% down. In a couple years it's worth $110,000. Sell and use the profit to put 10% down on a $200,000 house. Repeat. That can't go on forever. It also can't even get started everywhere. These are regional bubbles driven by a number of factors. Low interest rates were only part of the puzzle.
Of course, by the latter part of the boom, 10% down seems such a quaint idea, doesn't it?
Posted by William Polley at July 18, 2005 12:23 AM
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