The Price of Prosperity

Things are going to get sticky sooner than later for those home buyers who over-extended themselves with the financing of their American dream. Those who financed 100% of the loan and/or those who used exotic financing options - interest only loans, option ARMs, or, hell, even just regular ARMs - are going to be in for a shocker when interest rates rise and their rates finally start readjusting on a monthly or annual basis. An article aptly titled The Price of Prosperity sheds light on this upcoming problem:

This seems to be a problem with adjustable-rate mortgages, as well. We know homeowners who are facing the increases now and are not able to come up with the additional funds. That means more foreclosures are on the way. It's sad, but true.

As the ARMs taken out during the first part of this century start to amortize on a monthly basis - inconveniently coinciding with higher interest rates - what will our nation of house-rich, cash-poor denizens do? Sell at a loss? Hand over the keys to the bank? In either case, I we'll undoubtably see a decline in the over-inflated prices currently in the 'hot' real estate markets. A return to sanity, as I like to think.

And for those that think real estate "only goes up," your memory is very short-term, indeed. One need not look far back in history to see the downside of real estate. A great source on anecdotal rememberences of downturns in the real estate market can be found in the comments of this blog entry: Do You Remember the Last Bubble?. Definitely worth reading, especially if, even with the clear signs of our current bubble, are considering purchasing property.