Part 3: "The mother of all bubbles ... real estate bubble & tax appraisals"

Financial Guest Post
By D. Sherman Okst

Let’s talk Ron Paul for a second.

Paul is a medical doctor, an OBGYN, and a Republican Congressman from Texas. Personally, I wish we had a few more like him. He is one guy on the hill who knows the economy. Here is what he says about cheap money, “It causes people to do stupid things.” (Video: see the 3:25 minute point.)

I don’t think he was talking so much about the investor who thought buying a good house for too much meant that he’d be able to sell it later for even more money. No, I think he was referring to the investment bankers who created what Warren Buffett calls "weapons of financial mass destruction."

What I am driving at here is this: To clear out a glut of inventory, and 24 million homes in the mother of all gluts, you need buyers.

And a lot of them.

The issue is going to be this: Since financial institutions aren’t creating the loans that created money for buyers who would have been better off renting, then who the heck is going to buy these homes? There aren’t going to be subprime borrowers, or buyers to assume debt from a whole periphery of other creative loans that are no longer being offered.

I mean, the last “positive” sign of qualified buyers I saw was a piece on a busload of Chinese millionaires looking for second homes. Most of them said they’d wait until prices fell more.

Compound this “little” detail with the fact that the economy is hurting people who were qualified buyers.

Housing prices won’t, in my estimation, round out for this “smooth” landing that the first chart indicates with its pretty little dashed line. What possible positive event would cause a smooth landing as the first chart indicates?

Previous: Part 1, Part 2
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D. Sherman Okst is an Augusta County resident who with his wife runs a small technology business. He reads extensively and studies the economy blogging as "Davos" at the Daily Digest, a column for Chris Martenson, which gets 1.5+ million reads a year. Sherman writes code, was a high school computer science teacher, and ex-airline captain with 15,000 hours and 18 years of service. He was a builder, managed a lumber yard and as a kid was a mate on a fishing boat. Sherman has also had work published in a few magazines.