Tuesday, May 17, 2005

Bubble reaches Eugene

The other day I discovered a new development of big (3-4,000 sq ft.), expensive ($500-800k) houses in the SW hills of Eugene. Apparently there are others like it around the outskirts of our urban growth boundary. Five years ago you could have bought a house of that size for $300-400k. I was kind of surprised, as neither population nor income growth have been very large here in the last few years. Home prices were pretty flat here around 2000, and only recently accelerated. A realtor told me that "the market here is just so strong... it has nowhere to go but up!"

But, later she said "My husband and I worked our whole lives, and we can't afford any of these houses... Where do people get the money?"

Well, here's how:

WSJ: "More and more Americans are turning to debt to pay for lifestyles their current incomes can't support. They are determined to live better than their parents, seduced by TV shows like "The O.C." and "Desperate Housewives," which take upper-class life for granted, and bombarded with advertisements for expensive automobiles and big-screen TVs. Financial firms have turned credit for the masses into a huge business, aided by better technology for analyzing credit risks. For Americans who aren't getting a big boost from workplace raises, easy credit offers a way to get ahead, at least for the moment...

Utah vividly illustrates the changes credit has wrought in the U.S. Last year, 28 of every 1,000 Utah households filed for bankruptcy, twice the national average and nearly triple Utah's rate a decade earlier, according to Economy.com, a West Chester, Pa., consulting firm. Utahns often get married early and have the largest families in the nation on average. That makes for a lot of young parents with modest incomes looking for big homes and cars. The median monthly mortgage payment in Utah equaled 45.3% of a worker's average monthly income in 2002, the fourth-highest level in the nation, according to the Utah Foundation, a Salt Lake City think tank."


Anonymous said...

You should buy one of those $800K Mcmansions with a 0-down intrest only loan and flip it in six months for a quick $200K gain.

Steve Hsu said...

Hmm... why didn't I think of that. Think I could start a hedge fund based on that strategy? :-)

Anonymous said...

Hey Steve,

In his latest column, Krugman connects our dependence on low-interest loans from China to the real estate bubble in his latest column...


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