patrick.net

All of a sudden I’m not having much difficulty visualizing buyers asking their realtors “Don’t show me ANYTHING that was purchased in 2005″.

Don’t show me anything purchased in 2004.
Don’t show me anything purchased after 2000!

Absolutely. Make that 1985, since housing almost doubled as fallout from the 1987 stock market crash. 1971 would be even better.

Having found the mythical 1985 purchaser, I would draw a line gradient on a graph from the 1985 price where y/x=averaged annual CPI and draw a little X where it intercepts 2006 and make an offer accordingly.

it gets worse!

Randy H Says: I have a thought. Bare with me...

there IS a nudist beach near here, i suppose :oops:

John,

most of these folks buying into the traditional blue-ribbon areas are trade-ups rather than first time buyers (well, we also have stock market lottery winners from time to time, although they are harder to come by these days).

Most people buying 1M+ properties are not first time buyers, and as long as they can unload their condos/THs/beginner homes to true beginners, they just plough in their equity into their next home.

Also, the homes available in these select pockets are quite limited, compared to the number of people who desire to move there, for schools, or prestige, or safety, whatever.

I do think we are entering a phase in history that there will be a wider dividing line between the haves and have nots. Walmart is suffering, Tiffany's, LVMH are having record sales growth. High-end retailers like Abercrombie & Fitch are all doing well. If you try to book an European tour with Tauck, it is not possible to secure a seat unless you do so half a year ahead.

Will this trend reverse? I am not sure if it will within our lifetime, although I dislike it just as much as the next guy.

Also, there is an article in BW earlier about the highest earners of this country have seen their annual earnings grow by 350%+ in the last decade while most people only saw a single-digit increase. Numbers may be slightly off, but you get the picture.

DS,

I stand corrected. I always get "bare" and "bear" wrong. There should be a third spelling of that damned word.

allah,

You don’t seem to be much of a bubblehead at all. Why do you believe real estate will be sticky given the enormous runnup with time-bomb loans and an already all-time-high inventory? Remember, sticky can only happen when sellers take their houses off the market because they can’t get their price….when people don’t have that opportunity, they must sell or foreclose.

Prices are already well into a phase of demonstrated stickiness. I ensure you that there are plenty of recent buyers who are not FBs. I realize that homes are priced on the margin, but homes are not easily direct substitutes for one another either. Differences in neighborhoods, and more importantly the wealth profile who tend to self segregate into those neighborhoods, is a stark intrinsic value discriminator.

Anecdotally, I work with many of the folks who have traded up 1,2,3 times into $2Mish homes, yet they also have well over 50% equity stakes and pay little more than they did on their starter condos years ago. We're talking about owneroccupiers who are paying maybe 12% AGI to PITI. We were paying about 14% before we sold in 2004.

These people will not sell if prices correct by 50% unless forced to by non-financial motives; things like moves for family or better career opportunities elsewhere (which will need to be even that much better to compensate for the hit they'll take on their sale).

This is all moot anyway. RE transactions are sticky almost by definition anyway because of the non-liquid nature of the market and quite substantial transaction frictions. The time-lag to RE transactions alone causes a high degree of marginal pricing stickiness.

And I'm not a bubble-head; and I'm proud of that. I am a rational market observer who has come to the conclusion that most residential real-estate in this area is overpriced and will revert to mean. No faith there at all. Just logical deduction.

JH,

Like I said though, I still cant believe these people are in for more than 70% equity.

I work with a lot of folks who have 70% equity stakes in $2M+ homes. We had 60% in the home we sold in '04, and we are not that special. Lots of folks are smart with their money.

--Also, there is an article in BW earlier about the highest earners of this country have seen their annual earnings grow by 350%+ in the last decade while most people only saw a single-digit increase. Numbers may be slightly off, but you get the picture.--

So if the US’s median house is at 220K, but the salaries are stuck at the level they were 5-10 years ago, how can these folks afford to buy the drastically higher priced homes?

The FT had some of the same data (along with the evidence that US corporations now constitute the largest portion of global output since WWII, and earnings of US corps are growing faster than anytime since 1947; which is astounding when you factor in the size of today's global economy and ferocity of competition. In 1947 lots of our main competitors today were still smoldering.)

The distribution is bimodal. That explains nearly all of your dilemma. There is a secular shift occurring in the structure of asset ownership in the US. It is quite possible to end up in a situation where real-estate is permanently higher than median affordability. Many European countries provide real-world examples of such, because they have permanently bimodal wealth structures.

I don't want this to happen to the US, but that's the answer to the scary fundamental driving some of this (the non-speculative part).

Are they on fixed loans? Why would they want to trade up into these properties with a new huge tax load?

Yes, fixed loans. Often well engineered to amortize aggressively. Why? Because they make that 350% referred to above, so their marginal dollar is worth far less than those stuck on the other side of the divide. That's what salary inflation does in a bimodal model. I know people in corporate finance who have seen their salaries balloon by 50-70% since 2001; and these are middle-managers not execs. The execs make obscene coin.

I know price stickiness pisses people off. I would just like you who insist it's not going to be sticky this time to consider this, please:

Every single RE downturn has exhibited sticky prices in the past. SO, if you're arguing it is "different this time", then you're arguing for a "new paradigm". Yet, you bristle whenever anyone suggests other "new paradigms" which you don't agree with.

So, if your new paradigm whereby now RE is no longer sticky holds, then you have to either

a) prove it with consistent theory, or
b) disprove alternative paradigms you don't like instead of just labeling them "new paradigms" and dismissing them.

Consistency is a bitch.

JH,

LOL, you're talking about my wife, btw. Regardless, I'll let your statements stand on their own. Invest in a public company with weak corporate finance, accounting and control at your own peril.

Is OO the same old owneroccupier ?

News,

I agree that we are coming to the end of a tremendous corporate earnings growth cycle, in fact the strongest in 50 years. We are due for a recessionary period.

The question is whether rising US corporate dominance -- which is tremendous, I'll dump some data I read this week below -- was just a strong cycle or represents a secular trend that will last for decades. I can find reason to justify both outcomes, depending upon how "macro" I look at things.

--

2001: US corps represented 7% of global output
2005: 12.2%. many times higher than any other single country, and growing at a rate an order of magnitude faster than any other country, including the Asian Tigers.

Fastest rate since the post war rebuilding boom starting in 1947.

2001: profits were $714.5bn
2005: $1,595.4bn; 123% increase

Largest growth in the US manufacturing sector, enough to offset the weakness in technology earnings and US auto manufacturers.

Top 15% US workers saw real wages grow by over 350%
Lower 85% saw their wage share of GDP decline from 58.6% to 56.2%, despite the fact real labor costs rose only 0.3%.

The wage differential is even more disgusting when you consider that the real cost of financing for corporations dropped from 5.6% to 4.1%, meaning that corporate costs are flat to slightly falling, while profits are exploding, yet workers are being paid less (unless you're in the top 15%).

Sources: FT, Global Insight, US official economic data, and UN economic commission data.

Randy,

I also cast my vote to "It's different this time". No one has a firm handle on what will be the effect of toxic loans. It's the wild card.

Has anyone noticed how quickly things seem to have changed since the stock market melt down began ? Even the NAR and DL seem visibly scared. HB stocks have been hammered even more. Every news is bad news.

The stickiness is not completely independent of sentiment and psychology. If the sentiments change drastically, stickiness would be under pressure.

Speaking of accounting firms, I can't help but be amused at Ernst & Young's retraction of their report on the size of China's nonperforming loans. "We hope this won't affect our business in China", says the spokesperson, as she touts the official $164 billion figure as correct. "We don't know how that $911 billion figure slipped passed our review process."

Yeah... can't imagine how that happened. I know who's numbers I'm not going to be trusting anytime soon.

Great thread HARM! Nothing to contribute, but enjoyed it all.

JH,

I can’t get my mind around this. I think of things as P&L. How much money is made, and how much it cost to make it. I find it fascinating how complicated this has become.

With all due respect, if you don't know the why and how of these things then you might consider tempering your animosity towards those working in that field. Cost accounting is not financial accounting, despite your protestations to the contrary. Or would you prefer that everyone who doesn't understand engineering simply lump it all together and dismiss those who study their entire lives to excel in their given specialty with an equal "perception of efficacy"?

Yeah, oo is me.

I am starting to think that this country needs a fundamental shift of wealth distribution, or something crazy like this may actually stick for many years to come. If we go down this path without turning back, this may mark the beginning of new serfdom for the mass.

Let me explain why. My wife and I went to her class reunion last week. We are obviously not in the most profitable industry although we do ok, but there are quite a few people in her class, in their mid-30s, earning seven figures, yes seven, including bonus, before tax of course, doing investment banking and hedge funds. There are folks we know for a long time that did well, there are also folks that we haven't kept in touch who did well. All of them live in CA (LA and SF) and NYC. And of course these people own their homes outright, since they are already in a tax bracket that mortgage deduction doesn't matter any more.

It seems that we are in a very perculiar state of economy. There are a bunch of top earners, and increasing number of them (although a very small percent of the total US population) earning insane compensation packages, while the mass earn less and less, adjusted for inflation. Since these jobs tend to concentrate in certain areas, and everyone wants to live in certain enclaves, and houses are priced by the marginal inventory, it is very likely that we may even see APPRECIATION for a bunch of middle upper class properties while the general housing sector suffers. It doesn't take a lot of them to keep the housing price of certain enclaves permanently high, and over the last few years we seem to have a lot of these ultra-high earners manufactured by the Wall Street.

It is the polarized income distribution, aka, the disappearing middle class of America that is causing this very odd housing situation. Housing is simply a symptom.

JH,

Those numbers are GDP deflated, not nominal. Thus the word real.

JH, The dollar devaluation is going to be steep. I hope that in the effort to correct trade deficits, the spillover into the US economy won't leave the public in soup lines.

OO aka Owneroccupier,

Welcome back. You still long on Gold ?

Yeah, still long, haven't sold a single ounce :-)

What Ben is doing is managing a "soft landing" for USD, you can't just let it slide outright, or the slide will become disastrous. I believe he will already pause in June. Gold will take off once the tightening is over.

news,

I think the difference between growth in real profits versus real stock market returns represents a reversion to more supportable valuations. Equities had remained stubbornly overvalued and would not be expected to grow in line with profits growth.

In fact, I think this explains the failure of value-style investing and the rise of all those annoying quant-style hedge funds in the past half decade. It's easier to arbitrage technicals than fundamentals during such a "correction".

news,

it depends on whether the central banks are really ready to tighten. I believe all central banks are unanimously concerned about employment first, although none of them come out to say it. That's why I expect this hedge fund party to go on much longer than we expect, I don't mean they won't end, it will just end much later. In the meantime, everyone suffers with stagflation and those who are closest to where the CBs sprinkle money will continue to enjoy outrageous compensation.

OO,

I am starting to have my doubts about BB. He might turn out to be a real man. There are advantages and disadvantages of both strong and not-so-strong USD. He is posturing as if he wants to save the USD. He might actually mean it.

ToBA,

well, BB is literally painting himself into a corner. Now he has essentially built up an expecation of 50bps by June 29. Well, if he only raises 25bps, everything will already shoot up. If he pauses, this take-off effect will be even more obvious.

A lifetime scholar doesn't switch position in the last minute. If you are trained to tackle a particular problem in your life, and you have shown multiple traits of favoring a certain solution, you are not likely to venture into the opposite of what you are preaching. He has talked the talk, now by end of June he will have to walk the walk.

JH,

essentially all Wall street jobs, M&A, IPO, trading, hedge funds, pushing USD around so to speak. The more USD they push around, the more USD they make and the more USD they get to push around.

15 years ago, people in the same position made far less. A director or managing director at a major IB made *only* 300-800K. Nowadays, they are making record salary plus bonus, in the neighborhood of close to 2M.

Wall Street has been around for a long time, no sign of rebellion in the masses.

JH,

I'm not a financial accountant, but have studied quite a bit of it in order to understand GAAP statements. My wife was a financial accountant for many years.

Financial accounting is a means by which everyone is supposed to be using the same measure. Apples to apples. Cost accounting is economic in nature. Financial accounting is comparative in nature. Cost accounting depends upon the intent of the organization using it. Some operations are best accounted with cost allocation, some with activity-based-costing, some with other types of methods. None of those methods can be compared to one another. If you tell me your department is adding positive contribution using one method, and another dept. says the same using another, yet the company is losing money because of improper allocation of fixed costs, for example, then how do we resolve this?

We force everyone to use the same cost accounting method, of course, as dictated by corporate finance, to make it all apples-to-apples. But that's all cost-accounting.

Now try to compare companies, in different industries of different sizes to one another. How do I know if a mining operation is being managed any better than a software company? They will necessarily cost-account in wildly different ways.

The normalization of all that into a universal scoreboard is Financial Accounting.

It is necessarily complicated, and there are raging theoretical debates about its form and direction. The IASB (mainly Europe) argues "market value" means one thing while the FASB argues it means something else. If they can't agree then investors cannot be expected to make rational investment decisions even assuming they get all their accounting perfect.

You mentioned revenue accounting indirectly earlier. This area alone has spawned enormous amounts of evolution in accounting due to the rapidly changing meaning of a "customer", "sale" and "payment". When is a sale a sale? When you get the money? What if their is a contractual promise to the customer for future performance which could cause a related charge-back? What portion is revenue when? Unless someone puts forth a set of uniform rules and requires that everyone reconcile to them, the very word revenue is meaningless.

This stuff is extremely complicated, and without it there would be no basis for any type of financial equity markets at all.

Financial accounting dates to 1494, predating cost-accounting by many centuries. Cost accounting is a modern invention of economic optimization, dating back to the early 20th century and the need to manage efficiently manage large, complex industrial operations.

JH,

Revenue accounting is incredibly complicated. Your one logical rule you produced from the chargeback scenario is but one of thousands upon thousands of issues that occur in the real world. And that's just revenue. What about depreciation, or investments, or expenses. How about when these should all be timed? You can't just let everyone do it on a cash-basis, or they'll just delay collections or accelerate expenses whenever they want to change a number.

Start making rules for all of those and you have the FAS.

I get demoralized when my mechanic starts spewing thisandthat about my car engine which I don't understand at all due to its insane complexity. That doesn't make his efforts unworthy of my respect, even if some mechanics use this to lie to people like me and steal our money.

John,

C'mon. You're tilting at windmills. Financial accountants caused the IPO to tank? LOL. I have to hear that one. You do know the difference between financial accountants and investment bankers I hope.

EBITDA means nothing without financial accounting. How do you think E D and A are determined?

Listen, I'm not going to try to explain why a cash-accounting system is prone to rampant fraud and gaming. Go take a class if you really want to know. I'm also not going to waste anymore time patiently explaining to someone who isn't interested in listening. I just find it more than a bit offensive that you are so willing to broadly indict a whole group of people whom you freely admit you don't understand what they do or why they do it. Go back to 1493 if you don't like financial accounting.

John Haverty and Jon,

I was gone for most of the evening so missed most of your “spirited” exchange (in the previous thread), which I deleted beyond the point where the debate degenerated into childish name-calling.

Please refrain from engaging in personal attacks and/or responding to personal attacks from others. Violating this rule in the future may lead to having your posts quarantined in moderation or banned altogether. Consider yourselves warned.

If you both wish to continue your flame war, please consider a more appropriate venue for this sort of thing, such as Craigslist.

And now back to our regularly scheduled programming…

Do not be depressed. Studies like this have been underestimating the future since before any of us were born. 30 years ago they told us there would be no more oil by now, that starvation and disease would cause a world crisis by now, that our economy would crash long ago.

However, technology leads to greater productivity and we create more food and other goods with less efort, enabling greater wealth.

What this study also fails to adequately include is the effect of the boomers on the labor markets during their working life. So many workers depress wages... for everyone. As the boomers retire a labor shortage will develop and real wages will climb faster than before.

Typically a retiring person accumulates the vast majority of their retirement wealth in the last 10 years before retirement. Typically a family spends like crazy in their 40s and early 50s (bigger house, college and other offspring expenses), often ending that period with less wealth than at the beginning of the period. The boomers have been in this phase and the first of them are five years into the last working decade. Unfortunately they (as a group) are not accumulating wealth for retirement. However, I expect that the generations that follow will perform better during those age years due to the reduced labor market competition.

Foreign competition will continue to be an issue. However, it should be remembered that this global competition is not new. It has been evolving in notable way for the US for many decades. Of course, it has actually been evolving since the beginning of all international trade.

Zephyr,

Am I a glutton for punishment or what! In spite of George's warning, uh I went ahead and read it anyway. Your absolutely right. We've all seen the charts and graphs but the actual real life application is quite different. Consumption peaks (if Harry Dent is to be believed) in the late 40's. I'm now 47 and have cut consumption to near ZERO! Much of this is not by choice. After your Dr. prescribes your "new diet" the shopping cart is almost as empty when you leave the grocery store as when you came in! Most things are paid down (if not off) and other than helping with college and a wedding or two it is time to "ramp up" your retirement accounts. To my way of thinking it's more about curtailing consumption than "ramping up". True, we're in our peak earning years but that would also tend to imply that we've "peaked" income wise! I certainly don't consider myself a boomer and have never lived or thought like one so it's easy for me to criticize but if those in their last half decade in the work force don't get a handle on their consumption habits they're going to have issues.

Do we really need a 2nd/vacation home?

Will we live without a state of the art motorhome?

Are expensive vacations a must?

Is XM/Sirius Radio really necessary?

Guess what?
back over 6 months ago, I made a "housing bubble podcast" and put it up on Itunes. I totally forgot about it because nobody listened to it. Anyhow, just this week alone, I've gotten over 50 emails from people asking when I'm going to make more of them. The fact that there is so much recent intrest in a housing bubble podcast must be telling of the changing sentiments.

JH,

Ahem, I hardly consider myself an authority when it comes to accounting (regardless of discipline) but what I've learned over the years is that it's not so much the bean counting itself but the "relationship" that matters. Unlike Euro firms where I believe there is a rotational requirement, no schmoozy good old boys here. Firms toe the line b/c they know that next year they may be assigned a different firm. By the time Enron had collapsed Arthur Anderson had plush full time offices located right in Enron's corporate headquarters. Yes, complete with ex-stripper "receptionist"! It's really no different then when a meat packing plant (that had been on strike for a really really long time) has cushy offices for "their" USDA inspector. Once they are "owned" it becomes a matter of "how do WE spin this". One stock analyst described himself in an "inter-office" memo as "Your loyal _ _ _ _ employee"! It's the "relationship" that goes bad.

Zephyr,

Well said. I tend to be long-term very optimistic about the US economy and strategic position. It's odd that my position is regarded as an unlikely, risky attitude given the weight of history. If someone wishes to play the odds then their money would be on the US and its workers for many generations to come. Perhaps some are just getting impatient waiting for the world to end.

Sure there are real problems. They are nasty problems which will be hard to fix. But, we've had even worse problems before, faced certain doom before, yet somehow transformed, restructured and reemerged even stronger. Maybe this time is different. Someday, it will be. And someday, the world will end too. But odds are that you're wrong at guessing when, and odds are I'm right at taking the other side of that bet.

One interesting study that the FT covered and I saw referenced in other biz press too was relating to the coming Generational Talent Shortage. In short, it goes like this:

- Boomers are retiring. In fact, they are retiring earlier than the previous 2 generations.

- This is leaving a hole (as Zephyr describes). Specifically, this is causing a growing "Management Crisis".

- There is a perception (somewhat founded, somewhat unfounded) that Gen X is largely a lost-generation of management. Few GenX went through the traditional "management path" during their career's window of opportunity.

- GenX suffered a perfect storm that caused them to largely miss out on management indoctrination opportunities: The 90s boom made it more profitable to eschew corporate management programs for riskier opportunities to strike it rich. The 90s boom caused large corps to suspend their management programs in an attempt to try to adapt to the "new economy".

- From the early 90s through the mid 00's companies aggressively outsourced, downsized and offshored often displacing those GenXers who did follow the traditional management path at just the time when they should have begun rising from middle to upper management.

- Now Boomers perceive GenX is too old to properly indoctrinate/train/educate, etc.

- Many companies are implementing incentive to retain Boomers post retirement as consultants to plug management gaps.

- Many companies are implementing plans to accelerate the advancement of "Millenial Gen" managers (usually called Gen Y by the authors; meaning the gen after X).

The conclusions were that this all bodes very well for younger workers today. They will have the most opportunities to rise in their careers as they in both perceived and actual high demand. It bodes ill for Xers who aren't those lucky ones who managed to navigate through the past 15 years into upper management. For those lucky Xers in upper management today, they probably have the most upside yet to come as they will be a unique (or at least percieved as such) resource, highly coveted by their companies and competed for by other companies.

newsfreak,

That is a tough one. Previously I have mentioned HSA's (Health Savings Accounts) and it has gone over "like a turd in a punchbowl". After several down dressings a round of brow beatings and one sound thrashing I'll refrain from being a mindless spokesman for a corrupt administration! However; I (like yourself) am concerned for my children. This program has been described as "welfare for the rich" and to a degree that is true. If we can incentivize wealthier older Americans to opt for this program fewer will be reliant on "Medi-whatever"*

The "work to death/Walmart greeter" crowd is not a myth. They do exist. And I blame their children.

newsfreak,

Yeah, my brother worked in construction much of his life and all of that without any meaningful benefits of any kind. He's now in his mid-40's and has little in retirement savings and no health benefits. "Employers" like contractors know full well that this is a dead end and all the while have this "income bubble" surrounding them! Meaning they are used to a certain lifestyle and if cutting your benefits or YOU loose, well then that's what they're a gonna do. It's just one of those situations where everyone in the equation is "disposable". The vendors, suppliers, partners, employees and certainly the future FB's. It's all a momentum play and those guys strictly live for the day.

Newsfreak,
In my opinion, skilled trade is just like corporate work: Some kinds of work pays more than others. I'm a graphic designer, and since there is still a glut of them from the dot-com, the wages are just OK. Not great, and definantly not in line with costs of living here in CA.
On the other hand, when I was a tool salesman, I knew a lot of guys who worked as skilled wood carpenters making things like front gates for wealthy people's homes, and charged a minumum of 100k per gate. I also knew housepainters that did really well. ( again painting the homes of the wealthy).
Mechanics do pretty well too. I've thought about getting my ASE certification because you START at 60-65k as a mechanic at a dealership and upwards to 100k. Even my tiny little lawn mower repair business pays decently for what little I do of it. Change the oil and sharpen the blade for $40. That takes me 20 minutes.
I'd say that right now, carpentry for people that work under a large company is probably the worst place to be. You're right: day workers from Mexico will work all day long for $10 a hour. They used to stand outside our store and wait around for contractors to pick them up. What's more is that a lot of these guys are good. They're used to building houses with hand saws, hammers, and chisels. Not power tools.
I think skilled mabor will make a comeback: everyone told their kids to go to college. Now there's hardly anyone left who can repair or make anything. This weekend I had to go all the way out to El cerrito to get parts for a lawn mower because the shop near my houe closed. NOBODY sells engine parts anymore. This guy had people waiting out the door. So the opportunity is out there. You just have to study the market like any other.

Newsfreak,
When I was in college, I was the repairman at a small hardware store. I learned how to glaze windows, screen screen doors and storm windows, sharpen knives, cut blinds, repair lamps, vaccum cleaners, toasters, and other small appliances. We charged something like $15-20 a screen, $50 a window, $45 a lawn mower, and $3 per knife. Little easy jobs that raked in BIG bucks. The boss was a cheap bastard and paid me $9 an hour while he owned a block of brownstones in Boston, a ski house up north, and sent his kids to private school. I always figured that someday, if things ever got super-bad, I could fall back on some of these skills. The only problem is that you only see this kind of service in very affluent places. Middle class people will not pay $30 for a screen. I don't blame them. But someone that makes the big bucks doesn't think twice. So in reality, I'd still be in the upside down cost of living equation if I did this.

There's this old hardware store down the street from us. It has absolutly everything you could possibly imagine. After working in hardware store for 7 years, I know what to look for. They have things like Mogle bases, loose panes of glass, oven wire, oven gaskets, socket adaptors, class A, B, and E screws and bolts, stainless hardware, and on and on. We live within 2 blocks of the place. There has been many times when I'm repairing a client's mower and I had to fabricate a piece for it, and this hardware store saves me every time. I've thought that maybe someday I might open my own hardware store complete with a wood floor, potbelly stove, cracker barrel with a checkerboard with rocking chairs, and of course- endless rows of loose nuts, bolts, light bulbs,and paintbrushes. People like old places. A old-fashioned hardware store tha also gave people a place to talk to each other would be a hit, especially since the Home Depots offer none of that. again.. I think this would only work in a wealthy area, but perhaos it would be sucessful enough to hold it's own merit. and pay me enough to stay.

newsfreak,

It's been my experience that most contractors live off of borrowed money. They are part of the crowd I call "sophisticated debtors". They know how to work the system. They're not so much experts at construction as they are experts at borrowing. Fret not. Builders in our area are already paying 8% and giving up HALF of the profits to their lenders. First the motor home goes then the place at the lake. These guys live large but just before the last "up scale" home goes up they are broke! And they all go broke eventually. Many know it's all contrived and don't care. Many times you'll see luxury homes half built and wonder why doesn't the builder finish it so he can get paid? Ahem, he already did.