My take on SUV's and McMansions...

[benburch]

As objectionable as these things are, we don't need to do a single thing about them!

They are self-limiting and self-punishing bits of conspicuous consumption!

When gasoline prices rise to the $4 a gallon range next summer, it will cost $112 to fill up the tank on a Lincoln Navigator, and it will cost .39 cents a mile in just gasoline (not to mention the other costs, depreciation, wear & tear, etc.) Already these things have a much lower resale value, and people who own them are selling them (when they can find a buyer) and getting smaller vehicles.

McMansions, often bought with interest-only loans, will be hit hardest by the housing bubble; Not only will they become worth less than the loans on them, but natural gas and electricity costs will make them hellishly uneconomical to heat and cool. Those I have visited are often owned by people so close to the wire, financially, that there is only one well-furnished room in the house, at the entrance, to make an impression and the rest of the house is nearly empty! And they are not structured such that zone heating and cooling are practical.

So, we don't need to do squat about these things... In fact, encourage your Republican friends to buy McMansions and the biggest SUV they can manage! They will thank you for it later. :evilgrin:

[Prism]

1. The debt always amazes me

I work in personal finance, and it always floors me to see the debt involved in McMansions. All it takes is one illness and *snaps fingers* they're utterly, utterly screwed. These people often have several billion credit cards (most of them maxed), evil car payments, and as you said, no furniture.

It's so bizarre.

[benburch]

3. I'll take my $380 mortgage payment on my shack.

And it literally is a shack... Though the city plan called it "Gable-Front Cottage Circa 1870."

[Prism]

4. Yeah, but Gable-Front Cottage Circa 1870 sounds nicer than shack. =)

n/t

[Child_Of_Isis]

2. McMansions

Good term ;-) My daughter rode us long and hard during her high shool years about selling our house (which is paid off) and getting one of these. But... many times returning from one of her friends who had such an animal, she would remark on the lack of furniture and heat. She eventually came to the conclusion that our house was "cute". Evidently she prefers heat.

[Walt Starr]

5. Problem is, the "housing bubble" is a myth

Housing prices are a local phenomenon, thus any "bubble" will occur on localized levels only.

Some places in the country may well be in a bubble. Others are most definitely not and values will appreciate.

Overall, values will continue to appreciate over time. In the long haul, regardless of localized bubbles, valuation will increase.

The housing market, unlike other markets, has a single factor which continues to long term valuation. They aren't making any new land.

[spinbaby]

7. "They aren't making any new land."

That was exactly what they were saying in Japan in the 80s. Prices still haven't recovered. Real estate isn't likely to collapse--it's not liquid enough for that--but it sure can sag. Buy it only if you can afford to keep it for the long term.

[Walt Starr]

8. That's why buying a home is a safer investment than buying stocks

When a sagging market occurs, you can't live in a stock certificate.

And that's still an example of localized bubbling. IT won't hit nationwide.

[One_Life_To_Give]

11. But the current owners can get screwed

But if you are the unfortunate owner of piece of property that becomes worth less than your mortgage. It can be traumatic to say the least. Hope people don't have balloon payments as refinancing a house with negative equity can be problematic.

[Walt Starr]

12. Buying with an ARM is completely foolish

not to mention the idiocy of buying with an interest only loan.

Seriously, a fool and their money are soon parted. This is not limited to real estate.

[ProfessorGAC]

13. No Bubble Down Here, Walt

You're exactly right. There are local bubbles even in Chicagoland.

Down where i'm at, there has been a steady, and decent, climb of property values, but no sudden surges. A few houses (bigger ones) have gone to people running from the "bubble zones" and they overpaid. But, it hasn't driven all values up by any appreciable degree. My house, which we bought in 1987, has increased in value about 3.8 times from purchase price, but improvements we've made account for 40% of that. So, that would work out to a bit under 7% per year. Not bad, but hardly a bubble! (We didn't buy it as an investment. We bought it as a HOME!)

If the bubble burst in the far north suburbs, or the western burbs, it won't affect my value at all.

So, your "local not national" conclusion seems right on.
The Professor

[Walt Starr]

15. Yup, I doubt there will be a "burst" in a "housing bubble"

I can see some localized "pops", but no far reachin "burst" as was the case with tech stocks.

[benburch]

16. Walt I have to disagree with you...

The bubble will not be caused by demand dropping but by soaring interest rates causing an increase in supply!

When these ARMs get to 14%, and when enough people are hit with balloon payments they cannot meet on the interest-only loans, people will either sell or lose their homes to foreclosure. This will flood the market nationwide with larger homes, uneconomical to heat and cool, and at foreclosure pricing. Even if demand for this sort of home remains constant, the supply will increase, and the prices will drop, and the value of homes owned by people having no problems making their payments will necessarily drop.

And the heating and cooling cost will also work to lower the value of such homes even were interest rates to remain at their current "low" levels. Also, commuting costs will rise, and such homes are typically located far from the offices in which their owners work.

All-in-all a "perfect storm" of downward price pressure on McMansions.

The opposite may be true for "shacks" such as mine, though.

[Walt Starr]

20. Ain't gonna happen

Sorry, but the sky is not falling. Interest rates do not shoot up to 14% overnight from less than 6%.

That is not a burst, no matter how you look at it. At worst, it's a slow leak.

And worst case scenarios where we see interest rates doubling (which is EXTREMELY unlikely) still will not affect all areas equally, nor have an effect for as long a period of time in all areas.

There will be no "housing bubble burst" because there is NO "houseing bubble" to burst!

[benburch]

21. When I bought this shack in '83...

my original fixed rate was 14%, so I know it can get to that level.

[merbex]

22. Back in the late 70's when Volker raised the rates (I was a teen then)

what did the rates start out at and how long did it take to zoom up there?

It seemed overnight to me

[benburch]

23. Seemed very fast to me, too... A year or so.

I cannot seem to find the graph of this, though.

[spinbaby]

17. Nope, no burst

More of a slow leak.

[One_Life_To_Give]

18. Could argue that was localized.

Much of the real Burst was in companies that had no positive earnings to start with. Balanced portfolios while still negative were not hurt nearly so much.

[CitrusLib]

24. I live in an area where housing prices have increased over 40% in a year.

I think on the fastest increase list, we're #2. My husband was jazzed by the equity we now have, but then reality set in. If we had to buy the exact same house today, we couldn't afford it. Moving up in this area doesn't exist. Not only that, we just got our property tax bill and it increased 100% over last year. Freaking doubled!

As for making more land, yes they can. It's called filling in a swamp. They do it all the time in Florida. ;-)

[ultraist]

27. 40%? Now that's a bubble!

There isn't a bubble in my region (RDU). Appreciation rates haven't increased dramatically and our job/population growth is steady.

There is, though, an increased number of speculators on the horizon, which is also a factor to consider when determining if there is a bubble or not, as are interest rates, but of course, bubbles are not totally contingent upon only interest rates or just number of speculators/investors.

As others have stated, there is no such thing as a national bubble. Inventory, # of investors buying, supply/demand, & appreciation rates, are very localized.

[Walt Starr]

28. Best sell and move elsewhere

or stick it out for the long haul.

[CitrusLib]

29. We're in for the long haul.

Actually, this area was undervalued for quite awhile, but this has been a completely ridiculous pendulum swing. Instead of catching up, we went soaring past, LOL. Unfortunately, salaries have not caught up with housing costs and if you add gas prices on top of that, I suspect there are a boatload of people really hurting around here now. I'm surprised I haven't heard more bitching. Some, just not as much as I thought there would be. Very red area though. I suspect they don't want to be viewed as unpatriotic.

[fighttheevilempire]

6. They've made their pig sty and so now they get to wallow in it

I like the sentiment. He who lives by the sword dies by the sword. Let them be hit the hardest, maybe some of them will learn and not vote for criminals and idiots next time.

[beetbox]

10. We all end up wallowing in it

drowning in others gravy spills.

See my above post.

[beetbox]

9. They punish others

SUV's- Weapons of Mass Pollution

McMansions- Instruments of Mass Habitat Destruction

Stealing from the future

[whatever4]

14. Oh, encouraging them, that's kinda mean, ain't it?

But understandable.

Good points, thanks, it's good to realize. I know that you mean it in terms of how wasteful that lifestyle is, and that it should stop.

I hate it though, because there will be a lot of human suffering. Those who feel more entitled and are less principle will merely TAKE what they need. The poor now will be poorer, and they'll be easy pickings for the new and angry disaffected homeless.

It just won't be good. The energy waste and gluttony will stop, but it won't be good. Just like in the Great Depression; when times are tough, they're tough on everyone but the very top. Hardly any of us are at the very top. The folks in mansions now, the overachievers, will be the predators.

We're their prey. Don't look forward to it.

[benburch]

19. I am mean to Rethuglicans...

I'd rather beat them with baseball bats, but that is frowned upon...

[Ioo]

25. I need an SUV!!!

I really do, I live atop a mount in WV. I do not drive my SUV everyday, in fact I drive a VW Beetle most of the time. But on snowy days and real bad weather, I NEED the SUV to get down the hill.

Can I get a waver?

[benburch]

26. You don't need a waiver!

You'll just pay a lot more for the gasoline!

And because you use it appropriately, you'll likely have no problem!

And you should be able to get an awesome deal on a Hummer soon.

[KansDem]

30. Build a garage at the foot of the hill to house your VW...

Then you need only to stroll down the hill to get to you car. On snowy days you can marvel at the sight of nature gripped by winter, the grayness of the sky and bare branches of the trees that reach to the grayness like long, bony fingers.

You can whistle Mahler's First going up and down, or just revel in the silence as "winter keeps you warm, covering Earth in forgetful snow, feeding a little life with dried tubers."

[Warren DeMontague]

32. Here's Your Waver:

:hi:
Hi!!!

[Warren DeMontague]

31. I'm libertarian-minded on the choices people make for themselves

even if I personally find those choices obnoxious. So, the concept of "doing" something about things other people buy that I don't like runs counter to my fundamental values.

That said, however, we don't need to be subsidizing the petroleum industry, offering tax breaks for hummers and SUVs, or doing other things to encourage outlandish levels of environmentally harmful conspicuous consumption. And there's no reason, IMHO, we can't demand better fuel efficiency standards from automakers. With the situation we're in now, I would call it a matter of National Security.