Houston Is #1

Yeah, baby!

It's My Property, I Can Do What I Want To

Oh boy, some dude over at Kim's place is bitching because he has to get a permit to put in a pool in his yard and no blankety-blank government should interfere with what is happening on his property. Well, it's an interesting argument. Houston is rather notorious for it's lack of building codes. In fact, buying homes outside of certain communities can put a person in a precarious living situation. The downside is possible death by burning due to faulty wiring, foundation shifting and building collapse, or drowning due to flooding. Well, that last one is less likely because there are no basements. Most likely, everything and everyone will just get really wet.

I live in a planned community where there are codes and rules. Out of state friends have snorted in derision at my snobbiness and then I point out that I know people who live in the country and down the street from their lovely five acres, a land-fill is going in. Nice. Oh, and next door, their neighbors have their toilet plumbed to a hole in the ground. That tends to knock the edges off a person's home value.

On the upside, housing in Houston is cheaper and Houston is not suffering the disastrous loss in home values that other places are experiencing.

In heavily restricted states and cities, like in New York, for example, it could be argued that the tight codes have contributed to inflated home prices. This article is from 1999 but the principles still hold:

Another recent report examined why prices are so high. Conducted by New York University for the city and the New York City Partnership, it found that because of corruption, outdated regulations and higher labor and material costs, residential construction in the five boroughs is the most expensive in America. Those hurdles stop many projects, further squeezing the market and driving up prices.

This study said the city can spur housing development by revising building codes and zoning regulations and by freeing up more city-owned land. The city also could waive or reduce permit fees for new projects and revise the tax structure so vacant land is taxed at a higher rate, while providing breaks for new multifamily housing.

Somewhere between safety and responsibility to the next owner and freedom to what you damn well please, there's a balance.

Cross-posted at Right Wing News

Don't Save America From The Housing Mess

Mark Steyn reinforces my opinion. I always like it when people smarter than me agree with me.

Housing Rescue Plan

Color me a free market zealot, but I don't want a Housing Rescue Plan. Some malicious lenders made bad loans and there are consequences. While I feel badly for the people involved and think that the whole process is excruciating and requires a PhD in law and real estate to understand, I think the best bet for the future is to make the laws better for future home buyers.

Like the IRS, it should be simpler and more straight-forward to get a home loan. But when there's money involved, straight forward seems to go out the window.

P.S. Isn't Congress supposed to come up with laws? Where are the Democrat's big ideas?

What Families Want

When Steve and I looked for a community to call home, we didn't go back to our native States--New York and Michigan--because we hated the snow, ice and gloom. We had lived in Southern California, and while it's delightful when young and single, there was no way in heck we'd live there with a family. So we scouted Arizona (too dry), Colorado (snowy, sunny, overvalued) and at our friends' behest, Houston (yes Houston), Texas.

Who expects to love Houston, or rather a suburb of Houston? That's right, no one. But you get here and love it. I've had so many people tell me this from every diverse background.

Still, city planners scoff. Houston is spread out. Houston doesn't have a "real" down-town. Houston is hot, humid, buggy, and miserable in the summer. Houston is a dirty, oil town. Houston is a cow town (this from an irony-disabled Dallas dweller).

City planners are stupid. As Joel Kotkin notes in his Wall Street Journal editorial:

Advocates of the brew-latté-and-they-will-come approach often point to greater Portland, Ore., which has experienced consistent net gains of educated workers, including families. Yet most of that migration--as well as at least three quarters of the region's population and job growth--has been not to the increasingly childless city, but to the suburban periphery. This pattern holds true in virtually every major urban region.

Here's what Houston suburbs have: planned communities, good schools, access to culture, jobs, jobs, jobs, cheap housing, etc. Sure single people might like the city. I'm a mom with three kids and I like the city. But I don't like it that much--not enough to live there.

I want to take my kids for a walk and go to parks safely. I want room. I want a mall within minutes and the grocery even closer. In short, I want the suburb of a big city. And there are lots of people just like me.

City planners need to remember the dull, boring families. We do exist.

H/T Instapundit

Illegal Immigration & Economic Woe

Maxed Out Mama discusses the economic situation in Europe which mirrors problems in the U.S. market and economy. Much of the problem there, like here, was driven by housing speculation and illegal immigration. She says:

The danger that non-stakeholder immigration poses to an economy is universal. See this 2005 Bear Sterns commentary on the illegal American workers. The study discusses the problem of miscalculating the cost of public services, but ignores another fundamental: non-stakeholder immigration (any immigration which causes the immigrants to be excluded as a class from full rights in the society, whether by legal means or by sub rosa means) inflates some assets, notably rental housing, short-term, but lowers the overall capacity of the population to consume long-term, which eventually causes a cycle of deflation. The problem with immigration in Europe is nearly universal; generally high taxation rates prevent even legal immigrants from accumulating capital.

I'm no economist, but it seems to me that illegal immigration is like living together and not being married. The illegals don't feel tied to the country and when a family situation, job or something changes that was unexpected, they leave. This would hold even with a sophisticated guest worker program. (And, watching the immigration debacle continue unabated, what evidence is there that the government will be able to manage this guest worker beast?) We Americans use the illegal immigrants for cheap labor and services, use them up, and send them packing once they've served out their usefulness. The relationship is selfish all the way around, and doomed to failure in principle.

Legal immigrants are married to the success of the country and make different decisions about their future. America needs to make becoming a legal immigrant more efficient.

Illegal immigration will be visited again. As the economy continues to soften, scapegoats will be sought. This concerns me most of all. And scapegoats will be found all over. Some will deserve the wrath they receive.

The latest round-ups of illegals seems to be what MOM has pointed to in the past--an attempt to relieve the tension amongst legal citizen's economic outlook. As more legal citizens lose their jobs, they'll go back to doing "jobs Americans won't do". I see these round-ups as the worst sort of policy. It's ruthless and craven. It's wrong.

The government seems to be conceding that they're incapable of keeping illegal immigrants on their side of the border. It's much easier to find the people who are working. Why isn't the government rounding up the gang-bangers? Well, they're not taking jobs "Americans won't do", for one.

The Anchoress believes that the hardliners might be changing their minds. I object to the notion that people opposed to the bill were "hardliners". The economic realities underlying illegal immigration must be dealt with and recognized in order to understand the problem and create a workable solution. As for changing minds, I don't think so. Even though I voted for President Bush twice and am proud of those votes, I have respectfully disagreed with his position on the issue from the beginning. That is, I'm not a one-issue voter. But I do believe his solution would have been like Reagan's solution: delaying the inevitable for the next generation and the next. It could be argued that the stalemate does the same. True enough, but it won't involve junky legislation that further threatens our national security.

The policy of viewing illegals as a commodity and not people, will cause untold grief worldwide. Economic instability is just the beginning. How will the corrupt countries deal with their vast, poor hoards when Tier 1 economies can no longer support their workers? Civil unrest will be the next step. The step beyond that? Externalization. That is, countries with obliterated economies due to their own corruption, will look at, with envy, their neighbors. Military dominance within will be the first step. Military actions without will be the next step.

Watch Venezuela. Watch Nigeria. Watch Iran. Watch any corrupt country that suffers economic hardships. The reaction from Germany to Japan is always the same: externalize blame, install authoritarian regime who promises that state's version of utopia, become militarily aggressive. That's the problem with Mexico in the future. It was almost the problem in Mexico's last election. A guest worker program, where no guests are wanted because the economy is tanking, will mean little. America is poised on the edge of not wanting or needing illegal immigrants.

The proposed solution ignored the overall economic reality. The big picture has been obscured with all this infighting and false dichotomies between pragmatism and idealism. In this case, everyone has been idealistic and continues to ignore the root causes.

Housing: Pricing Out the Working "Poor"

Seeing naked men dance on bars was not the strangest parts of visiting Key West a couple years ago believe it or not. The strangest was reading the housing section of the newspaper. A wealthy person could hardly afford to live there. How were the locals doing it? Little ramshackle homes weakened by termites and flooding crammed together on back streets and they cost hundreds of thousands of dollars. People who lived or rented there shared their homes with others. But the majority of working people were being shipped in by bus each week from Miami, I was told.

And the workers in Key West didn't work very hard. One art dealer told me that he move to Key West from Michigan and was made manager by the wealthy owner within a month. He actually came to work, worked at work and felt tied to the success of the business. It was impossible to get good help, who spoke the language and could handle all aspects of the business. In another shop, the cookie sales girl had a masters and moved from Israel. She hung out with and lived with people she met. Key West was a place to travel through. She wasn't staying.

A service worker could not expect to work, live and raise a family in Key West. He couldn't expect to do that in Destin, Florida either or much of the Florida coast. And now, he can't expect to do that in parts of Connecticut and in San Francisco. I don't know how a truly middle class person lives in most of New Jersey or in and around New York City. Many people who would be comfortable in Houston feel poor in these places because all their income is sucked away in housing.

This is a huge problem.

The executive director of St. Luke's LifeWorks, the Rev. Dick Schuster, says Stamford and boomtowns like it should tackle the housing crisis out of self-interest.

"The people who are working in your restaurants, your fire and police departments, are all of a sudden finding they can no longer afford to live in the community where they work," he said. "And those who do choose to live in the community become the true working poor, hanging on by their thumbs."

What is the solution to this crunch? Are there to be service cities housing the servant class who get bussed to the wealthy areas?

In the planned community where I live, the solution has been apartments, low income housing, senior housing, and modest homes built next to village centers. People of modest means can walk to school, shopping, restaurants, etc. Heck, people of means can do the same thing. But the community was planned to include everyone at that outset.

To me, it's ironic that the bastions of liberalism like San Francisco, New York, Connecticut and Key West have ended up discriminating against those in the "lower classes". It is a problem, though, that will spread throughout the country if it isn't addressed.

How will the free market fix this problem? One thought is that good service will become extraordinarily expensive or non-existent so that the exclusive enclaves will become a double-edged sword. All the trappings of the rich will only be trappings for those of exceeding great wealth. Perhaps the mid-wealthy will move away to find better, more modest pastures. This is already happening around Silicon Valley.

This economic creep, where a teacher or police officer or grocery store manager is considered "poor" is distressing. These are good, middle class jobs that should earn enough for entry into home ownership where they work. Or, to me, they should.

Recession Reality: The Debt Epidemic

Well, we're in one. The job figures just made it worse. And now, as MOM notes, people will ask Why? She says that wealth creation was an illusion. People were just amassing debt. And now, people are looking to blame someone, anyone.

One thing I found very interesting:

The failure to admit what happened and how is very likely to create a toxic social and political environment. As we speak, the financing for smaller businesses is starting to dry up. How bad it will be depends on just how bad the previous lending has been, so the effect isn't fully quantifiable yet. This will be a shocking event to those affected, and a broad range of individuals will be affected. The aftermaths of bubbles always leave the survivors dazed, confused and harboring a sense of injustice. Those who bought into the bubble claim it is everyone else's fault, and those who acted responsibly and suddenly get caught in the undertow created by all the irresponsibility know it is not their fault. Everyone will be looking for the culprit.

Historically speaking, such events are associated with social and political instability and nasty turns in mass psychology. Pogroms, for example. Persecutions. Ejections of minorities.

Democracies have the ability to deal with these events differently, but only if accurate information is disseminated through the society.

This phenomenon closely mirrors the progression of infectious disease. For example, my family is extremely circumspect about using antibiotics. We use them rarely and only when we've given our immune systems months to fight the bug. Hospitals are notoriously irresponsible about hygiene (there is no government enforcement agency about this, if you can believe it), farmers pump their livestock full to the gills with prophylactic antibiotics (that is, the animals don't need them, but they give them in case they are exposed and because they are in such tight quarters that disease spreads so quickly), many people pop antibiotics like candy trying to knock out viri with them and make the bugs stronger because they operate unopposed. In short, most people have bought into the antibiotic bubble. The bubble is popping. The problem is that now the bugs are so strong, that even the people acting responsibly get infected now with the antibiotic resistant strains of bacteria or drug resistant viruses and suffer and die. The fault lies with doctors, hospital hygiene (or lack thereof), ignorant people, promiscuous people, mobility, and farmers. It doesn't matter. Everyone suffers when the bubble bursts.

The only thing that will bring people back to sobriety is a lot of death and destruction. Sensible measures like good hygiene, quarantine, prevention and restraint with medicine will come back into vogue, until the next bout of expedience and ignorance.

Debt has been the antibiotic, the drug of choice, of the money world. People incur it like it's no big deal to finance their colds and coughs and ear aches, when they should have prevented the debt-illness to begin with. So the market is crashing, and will ultimately have a salubrious affect on personal finances, but a lot of people are going to get sick and die in the process. Bankruptcies, fleeing the market and everything else will affect everyone--not just the promiscuous, unclean, and lazy. Let's hope this financial crisis doesn't become an epidemic, although I'm nervous that it already is one but we're just in the silent spread right now.

Now look at this and decide if you think investment homes are a good idea right now. The question: are we at the bottom? Is the epidemic burned out or just started?

"Some question the morality of building a private home that large."

Is there such a thing as a house that is too large? The home owner, Arthur Chase, a Hartford executive, will end up with a big home, but not the biggest, in America. It's only 50,900 s.f. And this is what I don't get: There are only five bedrooms. There's no guest house that I can see.

Economy Worries

Big, fat, legitimate ones. Please read this and this. Are we headed toward a Depression-era problem or will this just be a 1987 miserable moment in time, which is bad enough.

I think it's perfectly rational to be spooked. The question is what to do? Do we put our money under our mattress? Do we sell stocks?

And, if we keep stocks, what's the definition of a "good" one?

Housing Bodes Ill

Well, Mama's good mood didn't last, did it? Here's what my friend, the ray of sunshine, is saying today:

Part of the problem is that foreclosures and forced sales due to impending default and foreclosures are now pushing way more homes on the market. Absolutely every bit of objective evidence seems to show that more and more homes are due to be forced back on the market by resets and recasts for several years. It is mind-boggling to contemplate the situation. We have a sharply reduced pool of buyers due to tightened underwriting and appraisal standards, combined with rapidly growing supply. If no new home were built in the US for a year, market supply would probably continue to rise for the entire year just because of the number of individuals who must sell their homes. We are also in the early stages of recession....

Both condo and single-family sales patterns show that the market in the NE is actually recovering somewhat, and that the market in the South has taken another downturn, while the West is tanking to a historic degree.

Given these conditions, many homes in the West are likely to lose about 35% of their value from the peak. The situation depends on neighborhoods. The worst losses will be seen in the recently developed areas and neighborhoods, whereas the areas with older housing will hold their values better.

In another post she shares her concerns about how Americans will act during a coming economic crunch:

History shows patterns of economic distress in human populations which produce social distress, upheaval and often a targeting of foreign groups within a country. The irrationalism of Communist and other forms of "right-thinking" are reemerging in the right and conservative groups now. This is not a favorable social development, because the US is moving into bad economic times and certainly will continue to deal with problems and attacks from radical Muslims.

This concern has bothered me for some time. We do not live in a pre-Depression America. The notion of stealing if you were poor was not the dominating mentality. People were, on the whole, far more church-going, community-spirited and moral. My husband's great-grandfather literally gave away the store. My grandma's family and farm fed any hungry person who stopped by.

Will ConAgra feed the suffering hoards? Are there enough community farms to feed the hungry should the bottom drop out? Would the suffering lash out? What kind of social unrest nips at the heels of a serious economic down turn?

We are a fat and complacent country. While people here are good and generous, I worry about prolonged and chronic economic stress.

Economical Good News?

STOP THE PRESSES! Mama is in good cheer:

To fully comprehend the exceptional strength of this report in comparison with recent trends, get the entire report at the link above and compare this month's figures to the two prior months and to the 2006/2007 YTD numbers.

I feel more sure than ever, although I cannot prove it, that the B/D models are causing BLS manufacturing related employment to be understated in recent months. The recent reads on the Japanese and German economies have showed some disappointments in growth, so I think this report may represent some gains for the US in heavy production versus those economies. The driving force is probably helping the US to gain share.

The necessary move transition away from a consumer-led economy and back to an economy based on fundamental production may be well underway. This is a strikingly healthy report, and no one can fairly accuse me of relentless, heedless optimism.

No they can't! So, today, we are letting the world know that Mama is happy. In the market? I say stocks are a strong buy!

Forgotten Wisdom

Tonight I read one of the best essays from 2007, if not the best. It is by Victor Davis Hanson. He covers all sorts of territory: Bush Derangement Syndrome (BDS), the definition of a Neocon, the housing mess, cheap Chinese goods and the notion of who to trust, media-wise.

Please read it.

Foreclosures Up 93% Over A Year Ago

That's a lot.

Unemployment Up Pretty Much Everywhere

Roaring hurricanes and the slowing economy, I'm a bringer of bad news all around. Can't help it. That's the facts for the day. MaxedOutMama has some news on employment and concludes with this interesting morsel:

Because of the drop in employment rate (i.e. workforce) in some states, unemployment rates and trends look better than they really are, and when one looks at the data in more detail a recent pattern of weakening is very evident. This is no doubt why the federal government has abruptly decided to enforce the laws against hiring illegal aliens. Last year employment was in a strong growth mode for much of the year. This year the trend is reversing itself. [emphasis added]

The government is trying to get rid of extra bodies so American citizens can do those jobs that Americans won't do.

Personally, I think the economy is going to get worse. My financial advisor's scorn for my "feelings" notwithstanding, I do have some reasons as to why.

1. Home defaults are just beginning.
   
2. Home values will decline forcing people to stay in homes they can barely afford.
   
3. Without disposable income, credit card debt will increase, there will be an explosion of bankruptcies. Wait, that's already happening--they're up 48% over 2005.
4. Profits will evaporate as spending stops. This hasn't happened yet, but it will.
5. Unemployment will rise dramatically. See above.

Some see unsettling comparisons to 1987. Well, one doesn't have to be money genius to see the similarities in the graphs.

Being a good financial steward is ultimately boring, which is why no one likes to do it. Get a job. Pay your bills. Don't go in debt. Don't buy more than you need. Save for a rainy day. Diversify. Diversify. Diversify. It's advice you'd get from your Grandma.

She also says to eat your vegetables and no one does that either.

Note to Financial Wizards: There is No Free Lunch

Well, you're all an optimistic bunch. 80% believe that the stock market is in correction mode. 20% of you are bracing for the worst. It looks like Hedge Funds are bracing themselves, too:

One hedge fund manager estimated that statistical arbitrage funds with more than $100bn (€73bn, £49bn) in assets had on average borrowed four times their actual assets. These borrowings magnify significantly any moves they may make in the market.

It is these more heavily indebted statistical arbitrage funds that have proved most attractive for pension funds seeking supposedly lower risk hedge fund strategies.

It is also these funds that ran into problems at the end of July when volatility began to rock the market.

As volatility rose, they began to cut back their risk. They did this by selling out of their positions to reduce leverage.

But the wave of selling only exacerbated the problem by pushing down prices. As asset values fell, the ratio of debt to assets rose. This forced them to sell yet more assets.

One hedge fund manager said: “Nobody is happy with their credit position and everyone wants to de-risk and de-leverage. And it is global. The market has gone freaky”.

Analysts at Lehman Brothers said the problem was that investors’ models, its own included, were behaving in the opposite way to tried and tested predictions.

Gah! MaxedOutMama gives this advice, if like me, you're concerned with the market:

Howard at Oraculations wrote about the perils of black-box investment models and buying stocks held mostly institutionally. But in general, if you have a good stock with strong management that has not been loading up with debt, I would hold that stock. Even if stock prices go down, over a few years you are likely to make a good gain on the stock, because it probably will grow its business in a difficult environment whereas weaker competitors will lose.

So how do you know the stock is a good one? There is no substitute for reading financials for stocks you buy or hold. None. If you are not willing to do this, you probably will be better off having a professional manage your money, with the proviso that you still must check their logic.

The stock market is a place to invest for long term gains. At any given time, stock prices could be up or down. What matters is not the stock's price today, but the long term performance of the stock. So if you like a company, pay attention to what the company is doing, and see the stock falling because of causes that do not seem intrinsic to its basic business or its management, a period of falling stock prices is the time to buy more. No guts, no glory, but do your homework. This is one reason for selling out before the top - then you have more money to buy later when things go down. Over decades this maximizes your returns.

Good advice. It's actually advice I took on Friday...which was too late to make a difference in the last week. So I called our financial guy on Friday and thoroughly pissed him off, I believe. But since I'm no stock expert and don't read the individual companies' financials and do trust stock fund managers (mutual funds), I asked him essentially what Mama said to ask yourself as an individual, What do the guts of the funds look like? How sound are they? How exposed to this bad debt and credit mess are they?

His answer,"We don't know. We'll know with more information." Well, I hate being told "I don't know". Shouldn't a financial guy know this? I also asked the financial guy about this phenomenon:

As for defaults, if a person has a non-resetting mortgage and has been paying on it for a few years, that person's risk of of default is not that high, but then you have to adjust for the possibility that a person loses so much money in the home from property devaluation that the person will walk away from it. This is already happening in some markets.

I am seeing lots more lower priced homes sitting and waiting for renters, too. This was not the case six months ago. While Houston has not seen sky-rocketing gains, just steady-eddy improvement, there are more homes available in the lower range. I've written about it before. It's strange. The homes that are over $500K are moving and the less expensive ones are sitting. Of course, like James Lileks says, ugly homes sit. But it's more than that. The houses aren't being rented either. So I mention this to the Financial guy and he sounded just like your local medical doctor, "Well, that's anecdotal." Well, true. But it's also factual and there is data to support it. Homes are sitting and the people who would buy them can't. And they can't afford to rent them either. I can only guess that they are moving in with parents or other relatives.

And there is another possibility, too. Could it be that that the market for lower-income homes is drying up because the pool of people buying them is drying up--namely "foreign guest workers"? I don't know the answer to that, but Mama has a theory:

I have been wondering if the Bush administration hasn't finally woken up to the facts. The move to actually follow up on the SS discrepancy files makes me think that they are trying to produce a lower unemployment rate by clearing out 20 - 30% of illegals.

We are in a recession, no doubt about it. We've lost too much forward impetus to recover.

Wow, if that's the case, it's hard core. I wrote before that the administration seems to view the Mexican workers in purely economic terms:

But for economic and social reasons, Congress and the President have no intention of creating a secure border. The United States electorate would experience inflation again with a tight border. It's simple, really. Less workers, higher wages, businesses struggle to keep costs down, prices passed on to the consumer, rinse, repeat.

This will happen if the illegals go back to Mexico. So in the midst of a credit crunch, a reduced worker pool would drive up employer costs. It would, however, keep Americans employed for a while longer until businesses start losing revenue because the voracious consuming American machine stops buying. That's the double whammy. Credit dries up, companies stop hiring, coupled with a family who has lost their home and living beyond their means in other ways......economic Armageddon.

And then, people will stop buying "luxuries" and non-necessities like, say, Chiropractic. Or, they'll buy whatever they need when they're in crisis. This happened after 9/11 for about six months and again after Katrina and Rita for about six months.

The fundamentals of the market seem worse now, though. And the market is freaking out. It's simple really: Debt is bad. Lots of debt is really bad. The American economy might soon pay for it's stolen "borrowed" lunch.

There is no free lunch.

Market Crash of 2007?

So do you think the market is correcting as my financial advisor does (don't they always?) or do you think the bottom will drop out and we're due for a recession or even depression?

How's the economy going to turn out?
	Recession
	Correction
pollcode.com free polls

MaxedOutMama has an opinion, as always, and she says sell....I think. What's that quote about one handed eononomists?

Home Sales Down

Down again across the country. An interesting thing is happening here, in The Woodlands, though. Sales of homes above $500,000 are moving briskly and increasing in value by over 15%/year. Sales of homes below $500,000 are slow, the market is glutted, and lots of lease-able houses are available. I don't know what to make of it, exactly. My guess is that owners in the lower range are defaulting and can't afford to even rent those homes. It's probably a good time to be renting used mobile homes for $700 a month.

From The New York Times:

Those problems have been exacerbated in recent months by spreading problems in the subprime mortgage market, which offered loans to buyers with spotty credit histories. Rising defaults in those areas are dumping more homes onto an already glutted market.

The sales declines covered all parts of the country. Sales were down 7.3 percent in the Northeast and 6.8 percent in the West. Sales fell 2.8 percent in the Midwest and 1.7 percent in the South.

There is a glutted market, alright. I'm just wondering if people in the East and West are seeing the same disparity--the bigger homes asking for more, the smaller defaulting. This would mean that the number of lower-income, middle-class people suffering is astronomical to pull the whole market down.

Sub-Prime Hell

Business Week has an article Time to Give Up the House about how people who couldn't afford a house aren't paying their mortgage, they're paying their credit card debt.

Experian's study, released June 20, says that the share of subprime borrowers who were 30 days or more late on their mortgages went up from about 32% at the beginning of 2003 to around 36% at the end of 2006—a sign of increasing financial distress.

Yet those same subprime borrowers actually caught up on their credit cards over the same period. The share who were 30 days or more late on their cards fell from 32% to around 24% between early 2003 and late 2006. (That's for borrowers with Experian credit scores under 620; people with scores over 680 are considered prime borrowers.)

Little "Skin in the Game"

Fears of widespread fallout from subprime borrowing have spread in recent days. Early this year, it appeared that the troubles would be contained to relatively small lenders, such as NovaStar Financial (NFI), Accredited Home Lenders (LEND), and New Century Financial (NEW) (see BusinessWeek.com, 2/22/07, "A Painful Hiss from the Subprime Balloon"). But in the past few days, Bear Stearns (BSC) has run into trouble with two hedge funds it manages that have taken on subprime exposure. That prompted a broad market selloff on June 20, with the Dow Jones industrial average down 146 points (see BusinessWeek.com, 6/20/07, "Stocks Swoon on Subprime Fears").

So, now all the companies that lend to subprime people are suffering and the people themselves are suffering. There are a couple theories as to why subprime lenders react different than prime lenders:

• They need the credit cards to survive so they pay them first
• They know that foreclosure takes a while to proceed
• They are paying their least expensive debts first

Obviously, these people are in over their heads. Obviously, lenders are losing what they thought was easy money. I know that banks will typically give you more than you can comfortably and realistically afford. It can be insidiously tempting to overspend on a mortgage for the house of your dreams. Subprime lendees who bail on their mortgages may not be good rental prospects, either. I don't know.

The upside of the mortgage insanity is that some people, who might not have perfect records have been given a chance at home ownership and made good on it. They are on their way to success.

Most of the people though, were sold on empty promises, and now, with bankruptcy laws more onerous, the suffering mounts.

Home Sales Decline

MaxedOutMama explains what it all means. If you have investments or own a home or wish to own a home or have money in the stock market or care a whit about the economy, you need to be reading Mama. Half the time I don't understand her.

In the most recent Money magazine, a guru said that he's getting out of real estate. Hmmmm......