We Have Nothing to Fear but Fear Itself

Lots of chatter about the crashing housing market. Time for some perspective.

Market booms and market panics are caused by the media. Left to themselves, most investors will do different things. There are market herds, and market trends, but there rarely will be panics or booms unless CNBC (or what have you) is fueling them. So it is with this.

The only thing that could cause a major housing downturn in is panic over a 15% decline in markets where the average gain over the past 4 years is over 30%.

Stay with me here:

House starts at $100,000
30% increase in 2003 is $130,000
30% increase in 2004 is $169,000
30% increase in 2005 is $219,000
30% increase in 2006 is $286,000
15% decrease in 2007 is $243,000

Pardon me while I weep uncontrollably for investors in Phoenix. Or even St. George. All I see in the part of Utah where people actually live is a solid, if unspectacular, housing market where there are still an unholy number of buyers out there for houses where families actually live (as opposed to, say, Herriman). We never had 30% increases here, and we're not going to have massive declines.

Please to remember a couple of things: one, the VALUE of your house is irrelevant unless you're selling it, and two, the payment is not tied to the value of the house. If you could make the payment when you bought it, you still can. We're not seeing falling wages anywhere.

The ARM thing is massively overblown. Most ARMs are fixed for longer than a year (and sub-prime ARMs are 2 years at a minimum), so the housing speculation that drove buying last year is not having any but a tiny impact on default rates today. Today's defaults are the product of buying two years ago, and there is NO MARKET IN THE USA where default rates are high and home values are lower now than in spring 2005.

I'm struggling to figure out what the reason for panic is. And I do business with New Century. Or did.