I don’t think it’s the current crisis is because we are a nation of spending addicts. Yes, Americans don’t save. But let’s think about why it has become this way. First of all, taxes are much, much higher than a generation or two ago. It is much more difficult to save when the government is taking such a large share of our incomes. OK, then why have taxes gone up so much? As a society, we have demanded social programs to protect those that have fallen through the cracks. Other countries don’t/can’t do that.

When my dad immigrated to the U.S. one of his coworkers asked him what if someone got sick in Taiwan and didn’t have money or insurance. He told her that that person would die. When my grandmother got breast cancer, my mom and to go up and down the street to ask neighbors to loan her money for surgery. She had to pay 20%+ interest on that loan. People that didn’t have money or couldn’t borrow money died (and many people did die). The reason people in other countries save 50% or more of their income is because it’s a matter of survival. The people that don’t save that much simply die when an accident happens if they don’t have a social network (i.e. family) to support them. That does not work here because families are not as tight knit (i.e. the divorce rates) as in other countries. So we rely on the government and social institutions (wellfare, social security, medicare/caid, the military, etc) to protect us.

There isn’t anything wrong with this, but the problem right now is our institutions are at risk, because the backbone of our institutions is the financial system and the credit it provides. This is collapsing right before our eyes. What is ironic about this situation is that what got us into this problem is what will get us out. The cause of the Great Depression in the 1930′s was too much spending with credit in the 1920′s and that credit eventually collapsing. What finally put the nail in the coffin of the Great Depression was World War II. FDR had the right idea with the “New Deal” when he tried to spend our way out of the Depression. But at the time, nobody had any idea of how massive (fighting a World War) the spending had to be in order to stop the de leveraging that was happening. The spending had to be so massive that only the government could accomplish it.

That is what need to happen now to stop this catastrophe. Hopefully it won’t be a war and we can do something more peaceful and productive like massive infrastructure projects (i.e. Hoover Dam that was built in the 30′s). But unfortunately, wars seem to be the only way to stop something like this as it causes countries to pull out all the stops and spend since the destruction of the country is at stake. I never thought we would see something like this again, but I am shocked that it is happening…

I agree. As Leon says, this is the deleveraging of America and the American consumer. But do we really think a nation of spending addicts can be cured by one trip to rehab? Most junkies relapse very quickly, and I imagine the American consumer will be no different.

That said, what I mean by “settle down” is that emotion has taken over many aspects of what we see. Good grief, there are some stocks selling for LESS than the annual dividend! When we look at the three most reliable metrics in Austin real estate, or anywhere for that matter, they are job growth, interest rates, and months of inventory. Austin actually looks good on all three of those (except in the $500K+ ranges), and should therefore have an even stronger market than we do, but we don’t because of emotion and fear.

I’m not saying the emotion and fear are not well founded, but unless they become the new leading indicator of market activity, things will eventually settle back into the more predeictable behaviors.

Steve

In any event, I’m particularly interested in the real estate of Lakeway. I have watched this market from afar for over 3 years waiting for prices to come back to trend before I made a purchase. Now, there are many homes for sale in the $600K and up range and yet prices have yet to correct and homes either sit on the market for months or are pulled because the sellers weren’t really serious about selling in the first place. Maybe the sellers didn’t get the memo, but it’s still very difficult and costly to obtain a jumbo mortgage. And, given what I mentioned earlier, buyers may not be as willing to come up with the 20% minimum to finance a house that is still overpriced.

Joe,
They are all good, central areas and should perform similar to one another. . With small kids, if you want the highest rated schools, I’d look into 8E. Area 6 has no good schools. Areas 7 and 1B are mixed.

Leon, yes, this mess gets more interesting every day. Hopefully it will settle down soon. Americans are going to have to change the way we live, long term, I believe. We’re spoiled. And are we any happier, really, than we were growing up in the 50s and 60s when we didn’t have all this “stuff”? I don’t think so.

Steve

If you were a youngish family with 2 kids which area would you advise is best for long term home appreciation out of the following list – Area 6, 7, 1B, or 8E? Obviously by limiting our selection to these 4 I’m only considering close in as I’m assuming close in equals better appreciation than any others…assuming you agree with that, then I’m further trying to make a call on which close in is best.

I realize there are other factors but I’m looking right now at simple appreciation.

Thanks again,

Joe

There is a massive de leveraging going on right now. The world’s economy runs on credit and that credit is rapidly disappearing. In other words, $1 in reality is $10 or $20 because of the banking system. What’s happening right now is those $10 or $20 are collapsing back into $1. Obviously, there are not enough dollars to go around, so we have a free fall prices and economic activity around the world.

We are seeing links that we have never seen before. For example, home foreclosures in Florida leads to Iceland banking system collapsing. Who would have guessed? Or that run away real estate prices in California, Florida, and a handful of states would bring down the world’s economy?

The last time something like this happened we know what the result was; a complete destruction of wealth, massive unemployment, crazy dictators coming to power in major countries, world war, and ultimately millions of lives lost around the world.

Hopefully it doesn’t come to that, but unless something drastic is done, this is the road we are on at the moment. It’s happened before and there isn’t any reason why it couldn’t happen again.

It certainly may not be, but we’re probably about half way through. But there are certainly plenty of “firsts” happening, so your point is well taken. If the auto industry implodes, who knows what might happen.

Steve