Getting my crash course in U.S. finance, real estate games, and so on while dealing with my Dad's things, the thing that dawned on me was that the house prices didn't make sense. For example it would seem reasonable that a house would cost more or less depending on the average incomes in an area, which of course get higher closer to economic centers, and would work out to...... however many years of income. Similarly house prices would correlate to rents and turn out to equate to X years of rent, again a percentage of incomes. You would buy if you had the down payment, felt secure and the numbers made sense. However what I saw was that these sensibilities had been abandoned and the name of the game was to buy a ridiculously priced house knowing you could sell it 5 years later for a doubly ridiculous price. This curve seemed upwards at about 20 degrees. The houses never get fully paid for but rather 'flipped' and shuffled with all sorts of people whose job it is to make this easier for you. Who cares about interest rates cause it's all coming back next shuffle. Well anyway, I just saw the clearest explanation I've seen so far of the crises and was reflecting on that summer and my first contact with how it all works in the US. If you care to take a look the link is below.Warren Buffet on Charlie Rose 10/2/2008
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Yes, the housing market in Seattle was and is nuts. And yes, it was mostly about speculation. The other dynamic in Seattle is a lack of land to build, making housing a precious commodity. This is unlike Dallas where the sprawl can go on and on. Ironically (or informatively), however, in Dallas the housing market never spiked, and hence has not crashed. Interesting. Anyway, hang tight to your investments. This is no time to start speculating, daytrading, or market timing. So say most financial pundits. And for god's sake stay out of debt (which I know you have).
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