Real Estate Melt Down

Remember when home prices were going throught the roof and the thought was 'how are people affording these houses?'. The quick answer, now that the market has gone sour is that they weren't. When prices go up we know that it is a sign of high demand shrinking supply. But when home values go up because of mortgages that should not have been issued then false value is created which affects not only existing homes on the market but home equity markets as well. When values outpaces demand (which ought not to happen) the market will inevitably correct itself. The correction (or bust, to use the common metaphor) will tell us how much values were artificial by its duration.

A possible reason for a bust market of long duration would be that homeowners will not be able to sell their homes because the current market values are such that they will not be able to pay off their existing mortgage. When this happens then these sellers cannot be buyers of upgraded homes. All this will start at a point where first time home buyers are unable to secure mortgages. A healthy market has to wait for mortgage debt to shrink to a point where people are able to sell. This is essentially the senario that ran through 90's. But a "healthy market" doesn't mean back to skyrocketting frenzies, but steady movement and prices that are in line with buyers ability to pay. The long durations of the 90's downturn was a result of bad notes through Savings and Loan institutions of the 80's, it seems history has repeated itself in the form of "sub-prime" lending.

Sub-prime lending basically means that people were borrowing hundreds of thousands and showing little ability to pay. Currently and in the past risky borrowers would go into the Federal Home Administration program (FHA) and because of their risk would force to purchase mortgage insurance (PMI). In sub-prime lending instead of PMI there was a higher interest rate in its place. So the borrower was not only not able to pay for a normal loan was put into a mortgage that they were really really not able to pay. It was a dynamic that defied logic. The mortgage industry simply refused to turn anyone away.

So now the real estate market has to correct itself which means prices must come down to reality. It took a little more then a decade for the market to recover the last time, it just may take that long this time or maybe longer.

Or perhaps not. Waterbury may recover a bit faster then the rest due to the fact that its biggest industry is health care. Unlike the mid-nineties the baby boom generation is heading into an age where health care will figure more and more in their lives and since health care is Waterbury's new brass aging boomers are its next war. Nothing is certain in markets, we're just here to give two possible outcomes.

Campaigner Elect

Once again Waterbury will vote for mayor as it has done two years ago. One overlooked aspect of this by-yearly spectacle is that it is by-yearly. Running for office is not cheap, so while running a city for the first year the second year is spent taking time from the job to raise funds and campaigning. Decisions in the first year may affect the mayors ability take on the task of being re-elected in the second. Of the last four elected mayors 3 have been investigated for corruption with two serving prison. Four year term politicians certainly can become corrupt but a two year system magnifies the temptation for nepotism and run in the mill cash in hand corruption.
Then there is campaigning itself. Anyone running for mayor must take time off from their job to run. Including the mayor. Is it wise for the city to allow the mayor to have to spend almost half the time in office running for another term?