housing-'90s vs now (by mannfm11)

There were simularities and differences between this one and the one inthe 1980's. For one, there had been an insatiable demand for housingfor decades following world War II. It was added to by the babyboomers. The creative financing we are hearing about now was a culpritas well. Remember we had to move houses (I was in the damn business andI think Yogi was too in some capacity)with interest rates above 12% formost of the first half of the 80's and they finally declined below 10%when we had the scramble for capital in 1987. Inflation and high taxrates created a lot of artificial demand as well and people werecarrying excessive payments on everything because they could write itoff.

I think the 1980's was less of a speculative boom than itwas the end of a speculative boom. I think the current stock market ismore like the real estate market of the 1980's in that what we havehere is an echo. Prices on any basis for stocks are lower than theywere in 2000. PE's are lower, real prices are lower on inflationadjusted basis, dividends are higher, yet the reason for stocks to behigh to this point are as good as they were in 2000. The housingmarkets of the 1980's was where the game was done and the playersdidn't know it.

What about this housing market? The 1980market was financed to accomodate higher interest rates. We neverthought we would keep getting double digit interest rates for 7 yearsand beyond when 1980 rolled around. The demand was there against risingrates. This time, windfall was produced by lower rates, then by easierfinancing terms. There wasn't a man alive in 1980 that would havebought on an ARM when he could get a fixed rate under 6%. In fact itwas tough to get someone to buy on an ARM when fixed rates were 12%. Wehave a different mentality today, a speculative mentality. People in1980 had been doing things like digging ditches and the people withmoney had lived through the depression. These young idiots today don'teven have a clue as to what hard times are and that prices could go inreverse for any time at all. That includes to some extent my generationas well as some of my parents generation. The guys that knewinvestments could fail are dead today, but not then.

therecent trend has been toward bigger houses and fewer occupants. Letssee if it actually stays that way? When you take the payment on a homefrom 1986 and apply it to the price of homes today with todays interestrates, I don't think you get that much of a difference in payments.Half the interest rate will equate twice the price. What I think themarket is missing is that the 1980's prices in homes was notsupportable and in this new day of utility price shock, I think thesame will hold true.