Monday, July 04, 2005 | When I was in Nicaragua, I flew over some ancient volcanoes whose tops had blown off, spewing stuff for many miles. San Diego is in the process of acting like a modern volcano. This one will be known as “the housing bubble.” No expert can say with certainty when this will happen. However, what will happen is vital to our overall economy, as homes are the main asset of the families that own them. They have become the modern method of saving for the future.

What are the reasons?

There is more true wealth than ever before, and it’s loaded with dollars for speculation.

Long-term interest rate mortgages have remained very low despite the Fed’s hike in short-term interest rates, and banks have a lot of surplus to lend for purchase or re-financing.

The major reason is the amount of speculation burdening marketplaces with condos and homes sold to non-users, who are just game-players.

1. The minority of realtors and brokers who compete with their customers to inflate what they buy instead of providing honest, trustworthy services on their behalf, and

2. The lenders who engage in highly creative interest-only loans, or adjustable-rate mortgages that are meant to lure clients rather than keep them being exposed to the likelihood of losing their homes as rates increase, which they will.

The implosion will come when the space between the left and right ear, where psychology takes charge, changes. It will happen on a dime when the marketplace becomes convinced that it is happening. This is no longer supply versus demand. It is the extraordinary delusion of the madding crowd.

Sanford “Sandy” Goodkin is acting chairman of Civic Solutions, a group of leaders who analyze San Diego’s problems, prioritize them and search for solutions, representing diverse points of view. He is a trustee of the Urban Land Institute and is a pioneer of residential market and marketing analysis. Read his real estate columns at www.sgoodkin.com.

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