Now is the Time for HECS Investing

Reinhart and Rogoff in their fascinating book This Time is Different explore, for probably the first time ever, the relationship between real estate and large-scale financial crises, particularly bank failures. Among other fascinating insights, their research uncovers the pattern of the 4 to 6 year period of languishing home values following a serious economic downturn. This is hardly surprising since the last 30 years has seen the relationship between banking profitability and mortgage lending focused-on by 'supply-side' proponents, fanned with 'ATM' ease of access to home-equity cash, and ridden like crazy into our current 'Great Recession.'

This leads me to three immediate insights:

First, the government's fanning of the 'American Dream' of universal home ownership, which is both unsustainable and of questionable value, is suspiciously aligned with the banking lobby's interest in short-term profitability. It is a relatively easy case to make that the banking/mortgage industry's crisis is self-made as it attempts to make equity available to its owners solely by means of debt-loading to the point of collapse. The Military/Industrial Complex railed against during Vietnam and the Cold War can be said to have been replaced by the HUD/Banking Complex as the political and economic interests of both conservative and liberal politicians align with the banking and mortgage industries. New homeowners (with new mortgages) make loyal voters.

Second, the next 4 years will be the ideal time to invest in residential real estate as values, driven back to earth by the banking industry's liquidity retreat and the federal government's staggering debt load, are prevented from appreciating.

Third, the risky nature of investing in residential real estate using traditional employment-based debt instruments will be illustrated in high-relief as employment continues to languish and foreclosures and short-sales hammer investor returns and the government's balance sheet.

Digesting the huge 'debt' meal we have gorged ourselves on will take time; time during which investing in lien-free residential real estate will reward investors, rescue Senior homeowners and significantly contribute to our economy's recovery.