The Housing Market:

What They Aren’t Telling You

To the Editor:

The problem is far bigger than the analyst would have you believe. Unless something is done to knock this train off the tracks we are in for one of the toughest economic downturns since the Great Depression.

Those attractive and variable “subprime” or less than interest rate loans are rapidly ending their honeymoon years and entering into their high interest 30-year payments that most homeowners cannot afford. The solution, given the best scenarios, would be to refinance your home into another risky variable “less than market interest” loan or to sell the house and take your gains. Unfortunately, with the continuing housing slump most people that purchased or refinanced under these loan programs did so up to and in many cases over 90 percent of the home value. Now, since they have spent the last five years paying less than interest rate, the principal balance on their mortgage has increased and in many cases is greater than the current value of the home.

The result is a rapid increase in rates of home foreclosures, which results in an increase in available housing inventories which, as we have already seen, results in a continued slumping of home prices as inventories increase. It is simple supply side economics. If there is more of a product than is needed, the prices must fall. You don’t need a PhD to see this coming.

So what is going to happen now? Well, I hate to be the bearer of bad news, but over the coming years we will see an almost complete collapse of our economy starting when the building industry comes to a halt and all of the industries it supports collapse. Inflation will take off within the next two years, the fed will lose its effectiveness at regulating the economy, and crime will begin to climb substantially. It will start with an uptick in robberies and increase to more violent acts of public and civil aggression as more people are left without homes, jobs, and the means to afford their current lifestyles. Social programs will begin to lack funding, public services will be cut, and we will all be looking to blame someone.

Who is to blame? Chances are, the company that originated your loan has since sold it to one company that has again sold it to another. Along the way they have all scraped their profit and passed it along to the next holder. This is capitalism at its best. It’s not their fault; they are just manipulating the system as it has been designed. Whether they are right or wrong, ethical or not, the fault is our own.

The “I want it all and I want it now” mentality is what has caused this dilemma. Each of us who spend outside of our means is to blame. Now we will all have to pay the price for being spoiled little brats. Buckle your seat belts, it’s going to be a rough ride!

Daniel R. Gaita

121 Dodgingtown Road, Bethel                                       July 30, 2007