The Ignorant Investor
Ignorance Can't Stand in the Way of My OpinionMonday, June 20, 2005
The Headline That Strikes Fear Into Mine Heart
The report, presented to a group of home builders in Washington last month but not yet released publicly, finds conditions in many parts of the country "mirror past conditions that preceded regional housing busts." Among other things, it cites increases in the number of riskier loans, including ones that allow buyers to delay repaying the principal or that aren't backed by full documentation of the borrower's income and assets.
In other words, we've got an increased percentage of borrowers who have to walk further out on the financial plank to afford the skyrocketing costs of homes. The driving force behind this is increased competition between private lenders that has led to a lowering of credit standards on loans that are getting bigger and bigger, on average. Isn't that comforting?
But the kicker is down at the bottom of the article:
Now, I bought into the market back in 1999 and benefitted from the home-buying hysteria that swept the nation over the past few years. But I've never counted the paper value of my increased equity as an asset in making up my own personal balance sheet.The report says lending patterns of the past year are similar in some ways to those of the late 1980s, shortly before prices fell in parts of the U.S., including Southern California and New England.
This is why.
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