Paging Peter Schiff…

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I’m not normally one to say, “I told you so,” but I don’t feel the least bit reticent about saying, “HE told you so” when referring to Peter Schiff’s great insight on the housing mess.  Just in time for the student of Austrian Economics to say, “Duh!” I found this article on CNNMoney.com.  The article profiles four (4) victims of foreclosure.  In at least 3 of the 4 cases, the people had adjustable-rate mortgates (ARMs).  In 2 of the 4 cases, the people bought homes priced well above the median home prices in the highest-priced regions of the U.S.  In every case, the homeowners eventually went “upside-down” in their home(s).  I think the point of the piece is to put a “human face” on the problems that so many endured when the housing bubble popped.  What would be more helpful, however, is to put some solid economic spin on the issue, by stating, plainly and simply:

  • Buying a house with an ARM puts you at risk.  You are depending upon a factor you cannot control—interest—to (eventually) make your purchase a good one.  As an old real estate investor, I’ve lived by this truism for years:  “You make your money when you buy, not when you sell.”  Even if you’re buying a home in which to live, the adage still works.
  • Buying too much home, just because the interest rate is supposedly favorable, is ill-advised, just barely avoiding being stupid.  Depending upon market appreciation to make your purchase economically-wise is a losing proposition.

The short answer on all this is:   The Fed and the State did it.  They pumped the housing bubble up and when it popped, the shrapnel hit ordinary folks, just like those profiled.  (One might argue about people who can buy a home for $600,000+ being called “ordinary” but that’s a separate issue.)  I just wish the mainstream financial media would provide solid economic reasoning, instead of running human interest pieces that obscure the real culprit.

10:47 am on August 19, 2009