For someone with a certain kind of smug, I-told-you-so sensibility, the Irvine Housing Blog is pure catnip.
The blog details at great length the financial difficulties of those trying to sell real estate in Irvine, Calif., perhaps the area of the country worst-hit by the collapsing housing market. Many of the current sellers bought half-million dollar homes they couldn't really afford at the height of the housing bubble on the assumption that housing prices would continue to rise and the house could be "flipped" in a few years for a substantial profit. Other sellers bought their houses decades ago but continually took out home equity loans that ballooned their mortgages to many times what they paid for the house.
Either way, the blog is littered with people trying desperately to sell their houses at wildly overvalued rates. It's hard to tell which is more pathetic: sellers wishfully thinking that pre-collapse prices are still viable or those who try but fail to sell their houses for hundreds of thousands of dollars less than the previous sales prices.
For many of the cases profiled in the blog, a certain case of schadenfreude is more than deserved. From a financial perspective, some of these people are simply idiots, and seeing them brought low feels like a kind of cosmic justice.
But while taking satisfaction in individual cases might be warranted, the bigger picture the blog paints - not just of Irvine, Calif., but of the whole country - is fairly disturbing.
Take, for example, a graph posted on the blog and attributed to the Federal Reserve: It shows the country's GDP over the past 10 years, both with and without the effect of consumer spending financed by second mortgages, or MEWs. Without the additional lines of credit financed by mortgages, GDP in the late 1990s would have been modestly lower, mainly growing at 4 percent per year rather than the more robust 5 percent stated by the official statistics.
Recent years, however, have been far less kind. The anemic but still positive growth rates in 2001 and 2002 become negative without equity financing, and the robust growth seen from 2003 to 2006 almost entirely disappears without the consumer spending financed through expanding mortgages.
This begs the question: Have the relatively good financial times of the Bush administration largely been an illusion? And now that the housing bubble has popped and home equity lines of credit are all but gone, where will economic growth come from?
The situation outgoing college graduates face, both this year and next, may be quite grim. Between the collapse of the housing market, the weakening dollar and rising oil prices, there seems little hope of a robust economy in the near future.
Still, both those graduates and the country as a whole can learn a painful lesson about economic fundamentals from the current situation. As ever, there is no free lunch, and what you borrow today has to get paid back tomorrow one way or another.
Jones is an electrical and computer engineering graduate student.
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