RIP for the Housing Boom

Bill Fleckenstein's latest article, It's RIP for the Housing Boom, summarizes recent economic numbers, highlighting that this boom has ended and a bust lies ahead. "Supplies of new and existing homes are growing. Add in wild condo speculation and gullible people buying land sight unseen. My conclusion: The housing bubble is about to burst."

Fleckenstein's notes the following tell-tale signs as the proverbial straws that will break the camel's back:

• Condo mania - everyday investors around the country, young and old, are snatching up condos as investment vehicles. But does that make sense? Who's going to reside in these homes and how is this "investment" going to cash flow? We already know that the ratio of rents to mortgage costs is severly out of whack. Many homes where I live (coastal San Diego) are selling for over $1 million dollars - that's over $5,000 per month on a 30-year fixed interest at 5.75% with 10% paid down, not including PMI, property taxes, and so on. However, one can rent such a million dollar plus dwelling for $2,500-$3,000 with no taxes, no home owners insurance, and no backbreaking home improvement work needed.
  
  People have bought into the mantra that not owning your own home is a slight against your self-worth, or means that you're not really living the "American dream." While home ownership is a great goal in the long run, it's foolish to rush into a purchase merely to have a piece of the (overpriced) home ownership fantasy. My wife and I own our own home; fortunately we bought back in 2001. Even then I thought prices were inflated, but compared to today's market, my home purchase in 2001 cost me about half of what it would have cost me today. I predict that by the end of this decade home prices are back to 2001 levels, if not lower.
  
  
• CPA Moms - this is what the author refers to as the folks that help push through "liar loans," loans whose applicants' stated incomes are far less than what they declare. I've not blogged about this topic much, but it merits discussion eventually. Basically the lending system has become rotten to the core as lenders, mortgage brokers, realtors, and appraisers have all been quietly looking the other way in helping people land loans they can't afford. A day of debt reckoning will undoubtably come.
  
  
• Speculators buying sight unseen - there have been numerous cases of eager speculators buying real estate in distant states sight unseen. In many cases the property purchased fails to live up to the promises made by the sales agents, with the net result being the poor speculator ends up with an acre in floodplains or a lot next to a rendering plant. A fool and his money are soon to part!