Behind the Bubble Babble

Housing is a big topic these days. Everyone's wondering if rising interest rates are 1) ever going to actually arrive and 2) cause any trouble for banks such as Countrywide Financial (NYSE: CFC  ) , Wells Fargo (NYSE: WFC  ) , and J.P. Morgan Chase (NYSE: JPM  ) , or homebuilders like Toll Brothers (NYSE: TOL  ) , Centex (NYSE: CTX  ) , Pulte (NYSE: PHM  ) , and D. R. Horton (NYSE: DHI  ) .

At the moment, I'm actually more concerned about what interest rates might do to an average Fool's wallet, especially if said Fool takes out a risky loan in order to afford an overpriced house. I got some pretty interesting responses to my recent article in which I made the (unbeknownst to me) heretical suggestion that prospective home buyers settle down a little bit and not take on a risky interest-only or "pick your own payment" loan.

One loan officer wrote to berate me for my "scare tactics." Another didn't like my math (which was done on a mortgage broker's own online calculator, by the way). Still another gave me the tired old excuse that these products are marketed only to sophisticated real-estate investors. My article cited a clear example to the contrary, and I'll bet this is not an isolated case. After all, I hear ads for "pick your payment" loans on the local top-40 radio station. What do I know? Maybe today's sophisticated real-estate investor is listening to Britney and Hilary Duff.

A manager at one mortgage outfit wrote that I "must not live in a lucrative housing market." It so happens that I live in a place where people are shelling out $500,000 for a run-down, 600-square-foot, 2-bedroom, single-bath crackerbox built in the 1950s. Last year, the same houses were going for $420,000. So I know that this certainly is a lucrative market, at least for realtors and mortgage bankers.

And that's just my point today. The very people most vehement about denying a housing bubble are precisely the people who have the most to gain from seeing one continue: mortgage sellers and realtors. (If you're wondering what's in it for me to rain on the housing parade, good for you! Pinky swear: Last time I checked, my paycheck was not contingent upon urging all of you to watch out for risky loans.)

And don't count on the mainstream media to emphasize this conflict of interest. Just for fun, try Googling this sound bite, provided in a press release describing the small drop in July existing-home sales. "The level of existing-home sales in July was the third highest on record. This is a big number any way you slice it, and housing is continuing to stimulate the overall economy."

You will find this tidbit repeated scores, if not hundreds of times, by business writers across the U.S. Come on, people! These remarks come straight from the chief economist of the National Association of Realtors. What do you expect him to say?

Let me state, for the record, that I'm not trying to predict a bubble pop or a long hiss, call a market top, or anything else that requires clairvoyance I clearly don't have. All I'm saying is that homebuyers should at least consider the motives of the people who continue herding them toward ever-more-expensive houses and risky loans. Despite what the realtors and loan officers want you to think, a home is not always (or even often) an investment.

For related Foolishness:

Seth Jayson would rather rent and have money in the bank, plus leftovers for vacations, cars, bikes, and beer, than buy an overpriced shack for risky terms. At the time of publication, he had positions in no company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.

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