Friday, September 08, 2006

Laughing at the Housing Bubble

There's a term for those who purchased homes in the last several years while the market was accelerating to its historically unrivaled peak...they're called FBs, Fucked Buyers (or Borrowers). And this is why... Prices were so high, the FBs were forced to borrow substantially more than they could reasonably afford without an exceptionally hot market to sustain it. Now, with the reality of home prices deflating substantially every year for the next two to five years, newer owners will be unable to sell their homes to cover the cost of their mortgage. They are likely to hold out for awhile, especially in those areas that have been the most volatile (like here in Los Angeles) trying to get out from the fall without a substantial loss. A few suckers will bite on the sudden price drop and become FBs themselves, but many of the current FBs will lose their homes outright, which then, of course, will saturate the market, driving prices further down.

I'm laughing...and I just can't stop. Not because of the poor FBs out there, but because I watched it the whole way up, patiently sacrificing the quality of my living situation, patiently saving the most I could afford, patiently investing what I saved, so that when prices finally started dropping and dropping hard, I would have accumulated a sizable downpayment. In the next two to three years, I'll reach the point where my downpayment will be 10%-20% of peak prices. A conservative estimation of a drop of 20% in house prices in the next two to three years will thus give me a downpayment of 30-40%. Unlike the FBs, I won't need PMI, I will be able to live--and live reasonably--with my mortgage payments every month, and when I sell at the next bubble growth, I'll make a substantial profit.


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