Wednesday, August 02, 2006


Housing Bubble = Lazy People

Well the latest news on housing is perfectly consistent with a slowdown. Mortgage applications are at a four year low.

Mortgage applications are down 29% in the past year, reflecting a severe slowdown in the housing market after four years of strong growth.


Other indicators of the housing market point to a slowdown. Sales of new homes are down 11% in the past year. Sales of existing homes are down 8.9%. Housing starts are down 11% in the past year. The home builders' sentiment index is down 41 points in the past year to 39.

So all that is left is to report falling prices. Any day now, falling prices. Come on, fall already. Ok let's talk about something else. The New York Times had an interesting story about men who have dropped out of the workforce.

Alan Beggerow has stopped looking for work. Laid off as a steelworker at 48, he taught math for a while at a community college. But when that ended, he could not find a job that, in his view, was neither demeaning nor underpaid. So instead of heading to work, Mr. Beggerow, now 53, fills his days with diversions: playing the piano, reading histories and biographies, writing unpublished Western potboilers in the Louis L'Amour style - all activities once relegated to spare time. He often stays up late and sleeps until 11 a.m.

The jist of the story is that a lot of men have lost their jobs and decided to stay unemployed for years. Boy, can you imagine being that much of a jerk and not working? Neither can anyone who contributes to this blog. ;-O Oh, I did go there.
That is not how I feel. In fact, I am all about working as little as possible. Truth is I like what I do but I chose my profession for its relaxed lifestyle. Being self-employed is great and it gives me a very healthy understanding of the work/leisure balance. I like having things but there is only so much work I want to do to get them. As I get older, and get more stuff, I have become less desirous of stuff, toys, gadgets. I still lust over cars and boats and the latest gizmos but I don't have that childlike I MUST HAVE THAT LITTLE RED SPORTS CAR voice in my head. At least not as loud as it used to be.

So what does a a few men enjoying the easy life have to do with the housing bubble? Read on:

"I have come to realize that my free time is worth a lot to me," he said. To make ends meet, he has tapped the equity in his home through a $30,000 second mortgage, and he is drawing down the family's savings, at the rate of $7,500 a year. About $60,000 is left. His wife's income helps them scrape by. "If things really get tight," Mr. Beggerow said, "I might have to take a low-wage job, but I don't want to do that." [Emphasis added.]

That's right. Using his homes inflated equity to subsidize his early retirement.

"To be honest, I'm kind of looking for the home run," said Christopher Priga, who is 54 and has not had steady work since he lost a job with a six-figure income as an electrical engineer at Xerox in 2002. "There's no point in hitting for base hits," he explained. "I've been down the road where I did all the things I was supposed to do, and the end result of that is nil." Instead, Mr. Priga supports himself by borrowing against the rising value of his Los Angeles home. Other men fall back on wives or family members. [Emphasis added.]

Him, too. Add disability payments or a spouse who is willing to cover the difference and you have the recipe for an easy life. What troubles me is when this lifestyle is funded with borrowed money and we know that can't continue forever. This illustrates the danger of letting bubbles form in the first place. To put it more clearly, an asset price inflation creates winners and losers which has almost nothing to do with hard work and saving. Two traits our society ought to be encouraging but which get lost in the gambling mentality of the bubble. Why put forth much effort at your job when you can flip a house or load up on an IPO. Even the winners of the mania hurt the economy when productive people leave the workforce because they have no incentive to work.
I worry about our societies stability when people like the above mentioned need to find a job and, perhaps, move and the price of their home is less than their mortgage. There will be a thousand different stories of woe when housing prices start to fall. Any day now. FALL! Ok, just prepare yourself for worst and I'll shut up.


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