Saturday, April 12, 2008

Lust And Amnesia = Disaster

The Boston Globe asks:

Did McMansion fever cause the US housing bust?

Now that the home crisis finger-pointing season is in full swing, it's a good time to take a look at how "house lust," as author Daniel McGinn calls it, affected the market.

McGinn, who recently published a book on the topic, points to a convergence of personal economics and good old-fashioned status-seeking as one of the root causes of the crisis. More likely, it went much deeper, as a combination of the American Dream and a mass amnesia about economic reality took hold.

Identifying "primary drivers" for what caused house lust, McGinn cites the revolution in home finance. Many buyers, whose only qualification for a mortgage was a human pulse, obtained large loans. As rates dropped, homeowners also operated like "mini-CFOs, deciding just how much of their wealth to keep in their houses," he writes.

Millions figured if home prices were going to keep climbing at double-digit levels, whatever they pulled out of their homes in refinancing or home-equity loans would be replaced by appreciation.

Read the rest here.

-AF

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