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Mortgage applications are low. Mortgage rates are at the highest level seen in more than two years. National Association of Home Builders said a new survey showed builder optimism fell in November, the largest amount since the September 11th terrorists attacks. Mortgage product innovations helped markets stay hot. Subprime loans gave millions with blemished credit records, who would previously have been denied a loan, the chance to buy a home. Prices are so stratospheric that even modest hikes in long-term interest rates could burst the bubble. And with federal deficits soaking up so much capital, interest rates are likely to rise as the economy heats up and demand for capital increases. Prices have already begun to fall in many parts of the country, and seem certain to fall much further before the market stabilizes. Price declines of this magnitude will be devastating for families who have struggled to afford the homes they purchase. While some homeowners may live in their houses long enough for inflation to eventually restore home prices to current levels, few would be happy to sell their house in twenty years for the price they paid today. Business Week reports that by 2004 the cost of renting a house in Miami was only 40 percent of the cost of owning a similar house - even taking into account low interest rates on mortgages. So it makes sense to buy in Miami only if you believe that prices will keep rising rapidly, generating big capital gains. Business interests did not screw over Americans. No one forced them to buy exorbitantly overpriced homes with loans they couldn't afford to pay for. Rental prices did originally follow sale prices upward, although not nearly as fast. However, in the last two years, the pace of rental price increases has slowed under the pressure of record high vacancy rates. Rentals in authorized shopping complexes skyrocketed after the MCD (Municipal Corporation of Delhi) sealing drive in the capital. This directly affects the retailer's business. Investors and speculators spurn the opportunities to get out while the getting is still good. Don't forget too that Uncle Al (Greenspan) is no longer around to provide liquidity to save the bubbleheads. Investors are prepared to buy houses they will rent out at a loss; just because they think prices will keep raising “the very definition of a financial bubble”. Investment banks packaged lots of mortgage loans into "Collateralized Debt Obligations" (CDOs) and then sold them on Wall Street, with a promise of a steady stream of revenue from interest payments. These operations were pretty much unregulated. Investors have made around 50% on their money since I first reported on the housing bubble and there could very well be more bubbling to come. Here is a linear graph of high-flying Toll Brothers (TOL), one of the largest homebuilding companies. InvestorElite.com aims to be that source. We do not recommend individual stocks and rarely do we even mention specific stocks.
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