Letter from Rourke Re: The Popping of the U.S. Housing Bubble

Dear Jim:
I respectfully disagree that the housing “bubble has popped”. (You had written in Odds ‘n Sods: “Here in the U.S., the unsold house inventory backlog jumped to 565,000 in April. The housing bubble has popped. There are no more bidding wars for houses. Now its price cut after price cut. In the coastal markets, I anticipate a race to the bottom, most likely starting in September of Aught Six.”)

Thankfully the air has been coming out very steadily of this overextended price balloon, without the blow-up or popping that could have occurred. As a Wall Street Journal article pointed out last summer, you can tell the end of a housing boom when the high end home inventory, expensive homes for sales listings, rises substantially. We are past that, and moving into mid-to-high range now and the general market. If it remains steady, we may avert an FSLIC type failure, which for the FDIC would be unrecoverable since the FDIC is simply too large to save. The real problem areas will obviously be the ones where there was the most appreciation, such as California, and this is be exacerbated by the 2nd mortgage non-conventional financing packages. People will no longer be able to afford as their short term adjustable rate mortgages [as they] start coming due, [with rates up substantially] from the low interest [rates of] two years ago. For those looking for survival land, get ready for a buyer’s market, especially rural land with gas prices currently so high. – Rourke