But, of course, rates will not stay low. They can't: they are tied into the cycle of the economy. And once we are in a definite and noticeable rising-interest-rate environment, what happens? Lower property pricing. It's then that the loans are no longer offered. Once you remove the loans, you've removed a ton of demand. Less demand, prices go lower. Plus, precisely at that same moment, banks start to see the trouble they have created as the interest-only loans turn into much more expensive loans, and those speculating (and anyone else who got lulled into the game) get overwhelmed with the rising cost to carry the mortgage. Many end up defaulting on the house, and the bank ends up with losses. Those houses are sold at fire-sale prices.
I mean, how can housing starts continue through the roof? Some have said it's the "second home buyer"? They aren't in it for the long haul. They are, by majority, hoping to sell the home within 5 years...Speculating. Here in Key West, we get a front-row seat.
So, in a nutshell, we are in a dangerous housing bubble. It will burst, likely sooner than later. Oil at $60+ a barrel is enoughpressure on inflation that the Federal Reserve will have little choice but to raise rates and cool the markets, reigning in demand. Less demand, lower prices.
When no-principal mortgage, no-money down mortgages, and all other aggressive schemes are not offered anymore, everyone will be scrambling for a seat as debt consumes them. I expect the media will be harping about the housing surplus for years to come. I think it will be devestating to many communities - especially those who sold off their tax base.
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