Posted 8/30/2006 05:33:00 PM by Douglas

What's that popping noise i hear in the distance? Oh yeah, the American housing market.

In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an “option ARM,” an adjustable-rate loan that lets him choose from a variety of payments every month. The smallest payment included no principal and less than 100 percent of the interest due. The unpaid interest was tacked onto the principal, creating “negative amortization.”

This let Joe trade lower payments now for higher payments later. He initially thought his salary would rise along with his home’s value — he was a marketing executive for a small software firm he was confident would be successful. But when a lost deal closed the company and “For Sale” signs popped up — and stayed up — in his neighborhood, a now-unemployed Joe is wondering how he will afford those higher payments when his rates adjust.

First of all, "Joe" is an "idiot." He couldn't rent another year before he could afford the house he bought? I don't feel sorry for people like that. But there's something to be said for the 'market' bringing in what something is worth. Is a house in the Bay Area worth $800k? Historically, no, but that's no indication that we're not due for a nice spat of double-digit inflation. What else is going to pay for Bush's silly war in Iraq?