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I wrote my Senetor, Dick Durbin, concerned about a newspaper article that said that the "conservatives" wanted to lower tax rates on the rich yet again. He replied, and one of his concerns was, in fact, the debt and deficit.

Durbin is a Democrat. You might want to stop listening to Beck and Limbaugh, both of those yokels are damned liars, and one of them is a drug addict.

See Why I vote Republican

The correction is happening, but there's obviously a lot of resistance to the new reality from people who bought at the peak. http://www.realtytrac.com/ tracks foreclosures, and there are a LOT. New records every month.

Check out the headlines from sites like http://housingdoom.com/

Phoenix- "Sadly, we are trying to clear-out historic HIGH levels of inventory with historic LOW levels of sales"

http://patrick.net/housing/crash.html

US Housing Crash Continues
It's A Terrible Time To Buy
Why?

1. Prices still disconnected from fundamentals. House prices are still far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans. Anyone who buys now will suffer losses immediately, and for the next several years at least.

2. Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators are talking about taking your money to pay for your neighbor's McMansion.

Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the risk onto Fannie Mae (ultimately taxpayers) or onto buyers of mortgage backed securities. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage backed securities. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more.

A return to traditional lending standards will mean a return to traditional prices, which are far below current prices.

3. Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.

For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for a loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for a loan of only $171,428.

Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.

4. Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.

It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.

5. Shortage of first-time buyers. The percentage of San Francisco Bay Area households who could afford a median-price house in the region plunged from 20 percent in July 2003 to under 10 percent in 2006.

6. Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."

7. Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money

I'd have to strongly disagree. First of all, in my experience, the intellectual quality of bloggers really puts syndicated columnists to shame. (I'm talking about the upper end of them -- no doubt you can find lots of bad quality.) They can write much more and link to the basis for their claims. If anything is in error, they'll typically have comment and trackback capability so others can instantly expose them. Rarely will columnists deign to defend their assertions. After reading blogs for a few years, I checked back to some of the syndicated columns I had read (this is what I had in mind) and just marveled at how intellectually shallow they were. In contrast, check out this list of some of the blogs I read:

http://econlog.econlib.org/
http://www.overcomingbias.com/
http://www.economist.com/debate/freeexchange/
http://www.janegalt.net/
http://delong.typepad.com/sdj/
http://gregmankiw.blogspot.com/
http://patrick.net/wp/

Several of those are professors. Now, tell me they're not more refined than the columns you'd read in the paper.

Are you content to be only a tenant in a system where someone else retains ultimate control?

Actually, yes. A lot of people don't realize you can become financially a lot better off by renting a place instead of buying. Before you rip me a new one, I'll admit there are a number of variables that affect the calculation, and non-monetary considerations, so I agree that claim doesnt hold for everyone. However, too many people assume that if you can afford the mortgage payments and can get someone to lend to you, buying is a no-brainer. They act like renting is "throwing away money". But when you buy, you also throw money away -- it's just called "interest" and "property taxes" instead of "rent". This site has a sample calculation for San Francisco:

Renting:
Rent: $1,800
Monthly Loss: $1,800

Buying:
Property Tax: $486 ($729 per month at 1.25% before deduction, $486 lost after deduction.)
Interest: $2,333 ($3500 per month at 6% before deduction, $2333 lost after deduction.)
Other Costs: $450 (Insurance, maintenance, long commute, etc.)
Principal loss: $1,667 (Modest 3% yearly loss on $700,000. Reality will be much worse.)
Monthly Loss: $4,936

Even if you strike the principle loss, that's still worse. And of course, the monthly expense doesn't cover the mortgage payment going to principle, which, while nominally "coming right back to you" is locked up in a highly illiquid asset that can only be draw on at sale or by borrowing against it at interest. (Or transaction costs.) If you rent and invest the savings in a well-diversified portfolio (e.g. covering large caps, small caps, foreign, and bonds in proportions appropriate for your age), taking advantage of the various tax-advantaged vehicles (Roth, 401k), you can be much better off financially. (Again, *can*. I'm not saying this is right for everyone, just pointing out the considerations.)

I know, this has absolutely nothing to do with Windows. I just wanted to dispel the notion of renters as being necessarily exploited.

Yes, because Real Estate Will Go Up Forever.

Sure, over time, things will tend to go up. That being said, in many areas, gains of 30% or more happened over the past year - that's simply not sustainable. In many of those places, builders have built huge amounts of homes - far more than the market can support.

In Phoenix, for example, sales are at record lows for this time of year (sales to inventory ratios - even without seasonal adjustments), and inventories are at the highest levels ever. Builders are literally walking away from developments, and large numbers of apartments that were converted to condos last year are being converted back to apartment. Selling prices (not asking prices) are way down from last year, and even Realtor.com is admitting that to sell your home, you have to be willing to cut a deal.

It's going to be a great time to _buy_ soon, but don't plan on flipping the house for a quick buck any time soon. If you wait long enough, you will make a profit (or die, in which chase it doesn't really matter).

Personally, it feels like something's got to give.

Maybe. However since bubbles are really a sort of cross between a pyramid scheme and a lottery the only people who are hurt are those who are not paying attention. Case in point: we sold our house at or near the peak and we are now renting. There is a pretty good chance that when we buy at the bottom we will have made 30% or more. Only people who are buying right now when all indicators suggest that prices haven't reached the bottom will be hurt. I.e. paying attention pays off! Look at basic forces. House values historically grow at 1-2% a year over the long term. If prices grow faster than that there had better be a very strong driving force or - its a bubble. Now, if you detect a bubble early and can afford the risk by all means take advantage of the idiots but be aware that what you are doing requires impecable timing or you can be severly burned!

The house bubble was created by FED policy (follow the links at http://www.patrick.net/housing/crash.html#links) but I think there is a deeper problem. Our taxation methodolgy is fundamentally broken. The solution (IMHO) - the Georgist "one tax". NOTE: That is NOT a flat tax.

You might want to do a little more research. Housing price bubble bursting has happened before and the signs suggest is is in the process of happening again. Here in Phoenix AZ rents are similar to Austin Texas however house prices are substantially higher in Phoenix. Rents and prices should track and when they don't you know a "correction" is coming. Try www.patrick.net for a nice list of links to check out.

Maybe there's a reason he's still renting.

The text of the book, up to chapter nine, is available at http://patrick.net/wpt/.