Wednesday, May 04, 2005

When The Housing Market Bursts: Ramifications

First of all, let me state that housing bubbles burst all of the time and they are a relatively local issue. They can be as small as a neighborhood or as large as a state. Houses are usually a good investment, but they’re not fixed assets. They’re not made of gold or some other permanently valuable substance. Ultimately, they are only as good as they are built. So, what happens when the impending housing bubble bursts? Lots of bad things. Let me give you one example.

Life is good. You’re doing the wife, two kids, and a dog thing. You get offered a promotion, but you have to move to Dallas. Or even worse, your job moved to Dallas without you. The problem is that the housing bubble burst where you live six months ago. You’re upside down on your mortgage. You’re stuck in a house that you can’t afford to pay for and can’t afford to sell. While you look for another job, your health care cost spike because you’re paying for aptly named COBRA health insurance. You find another job, but it is 100 miles away. You have to drive it every day and pay a ridiculous amount of money for gas. Worst-case scenario, you end up in foreclosure. Ohio leads the nation in them.

Now imagine you live in a town where the main source of employment suddenly leaves. In a couple of years, you start to see boarded up homes everywhere. Now you’re really upside down on your mortgage. You might as well take the loss, because you’re basically living in Flint, MI.

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