Here's an interesting column I came across on-line. The author is a business journalist in the mid-west, I think. The Real Estate Bubble Pops Here Posted by Dana Blankenhorn A post card came in the mail, from a Keller-Williams agent. (Is it just my imagination or have they taken over the market lately?) It was about the Gary house, down the street from me. The asking price is $334,900. I remember the Garys, from back in the day. Nice people. Salt of the earth. He was a deacon at the church. She loved him desperately. The mantle was already filled with pictures of grandchildren when I met them, in the early 1980s. I went there regularly for block meetings. They said we were crazy to pay $49,000 for our house. Mr. Gary passed away in the late 1990s. (God rest his soul.) She finally moved out with some of those grandchildren, a few years later. They had gotten an unbelievable offer. The seller this time gave her that offer, which doubled property taxes all over the block. Now they?re looking for an unbelievable profit. They might get it. It?s ironic that FNMA (Fannie Mae) and FHMC (Freddie Mac), which were created to make housing affordable, have in the last years done just the opposite. But food is energy, and too much obesity, I guess. The problem is that Fannie and Freddie buy anything. As a result there?s no longer any risk in mortgage lending. The banker moves the paper to the government, which turns it into a security. Everyone takes a fee. All the incentives are one-way. So you get 40 year mortgages, you get adjustable rate mortgages, you get interest-only mortgages, you get adjustable rate interest only mortgages. These were fine for investors, who could pay off called loans, but for ordinary people it leaves you one pink slip or one rate hike away from bankruptcy. And you?ve gotta do it. The price of housing is tied to the price of money, and the availability of loans. With the spigots turned on high, a conservative buyer has as much chance of closing as a value investor chasing Google. We?ve had bubbles before. Some are old enough to remember 1974, the last time Atlanta housing crashed. It stayed crashed for many years. But most aren?t old enough to remember that. So the bubble gets bigger and bigger and bigger. Prices go only one way. It ends when everyone?s in the game, when there are no more buyers, or when the price of money shoots up, as it might with this $2.50/gallon gasoline. Until then, $335,000 for a three bedroom, two bath in Kirkwood is just the price.