I wouldn't call it a bubble-burst, but forecasters are predicting a cooling off in the real estate market for many areas. New York is projecting a 2.3% decline in values. 2.3% is not a horrific bloodletting, but it is a dramatic departure from 12% annual growth that property owners (and vampires municipal assessors) have grown accustomed to in recent years. Interest rates remain low, so it shouldn't be too volatile an adjustment for the average homeowner. Here's who will get hurt: leverage addicts. These are the people who have treated their home's appreciation in the past few years as income, churning out the refinance and equity loans for an extra 10, 25, or 50 thousand every 18 months or so since 2000. When they wake up to the reality that they can no longer ride the appreciation curve and borrow themselves out of trouble, it won't be a comfortable thing.
I should probably stick to baseball predictions, but we are looking at a recession after the mid term elections. The inablity to use the home as an ATM will end billions in discretionary spending that has boosted the economy since 9/11. As always, it is the poor planners who will get hurt the most, and as always there will be a contingent of lefty fascists who will blame the Republicans and clamor for knee jerk initiatives to redistribute income even more than we do now. The fact of the matter is that equity is a savings account that is better suited for retirement and college than lifestyle-based debt. That fact will not help the bleeding hearts from grasping that you cannot legislate away stupidity and poor judgment.
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