3 Pointer!

Point #1: Across the country, the real-estate market is being seen as in complete collapse, so I thought I'd put some of those numbers in perspective:

if a $100,000 home appreciates 7% in a year, it increases in value to $107,000. This is seen as a relatively healthy increase in value, but nothing outrageous. If it then declines by 5% (which is the current level of annual decrease nationwide), it is worth....$101,650. That is, unless my math skills have really atrophied over Thanksgiving break, $1650 more than it was originally worth.

Yes, if you bought the house at $107,000, this is not comforting. Nevertheless, less than 5% of the US is living in a house purchased in the last 12 months, so the "collapse" of the real-estate market seems to me to be somewhat overblown.

Point #2: one of the major reasons the media cites for the destruction of the credit markets is foreclosures on houses with ARM loans, which loans have reset recently to much higher payments. I thought I'd just take a second to point out that those ARM rates are generally tied pretty closely to the Fed Funds rate, so the ARM resets are being massively augmented by the Fed itself and its ridiculous 17 straight rate increases over the last 3 years. I said several times while this was going on (2005) that the Fed ought to pause for a while, like a year, and see what effect its breakneck increases would have on the market. Doing what the Fed did is like trying to drive a semitrailer down the highway using only the rearview mirrors. Guess what? We're off the road now. And who is the Fed blaming? The tire manufacturer. Sheesh.

Point #3: if you live in Utah, there's still reason for hope in real estate (credit markets, by contrast, are national, not regional, so those problems, outlined in my last post, are still there and still nasty). See this article in the Deseret News today.