US house prices in free-fall

[Ben Kenobi]

Low home prices isn't just an effect of a poor economy, it's also a cause.

Yes, I agree that it has a bad effect on the economy. However, the house prices have been unsustainable for a long time now. It's basically how do you want to take your medicine? All at once or very slowly over a long period of time? This is a correction which has been overdue.

Consumers spend much less money when the price of their home decreases.

Only if they are withdrawing equity from their home. If you are using your home as a piggy bank to meet daily expenses, yes you are going to be hit very, very hard by negative equity.

Sure some people don't own houses, but the spending effect of those people is minimal compared to the effect of the spending of homeowners, and generally their income is lower.

Wow. So the poor people who don't have houses don't matter?

You've definitely jumped the shark here. I think it's mixed blessings, yes some people are hurt by the correction, whereas these worthless people are actually helped because now they can actually afford a house.

California especially, but California is a huge part of the US economy,

True, but if Californians hadn't bid up the prices of their houses, and kept them at a more reasonable level, they wouldn't suffer as much.

It totally depends on where you are as to whether this is a crisis or not. Places that missed out on the boom aren't going to suffer at all.

and generally the US economy will follow the California economy, although it's not a certainty. In this case the recession will reach into the whole US economy.

Depends. We shall see. As with anything some are hurt and some are helped. Don't you think that the people who now can afford houses are going to spend more when they buy one up?

Hey! I'm a generation X'er, not a boomer!

You sound just like a boomer, especially when you say people without houses don't matter.

What makes you guys think that people aren't going to speculate on home prices like they did before.

It's a business cycle. They will and then we will have another correction, etc. Human nature.

But for now, that prices are low, it's a good deal if you have the money to wait for them to bottom out.

You missed my point though. More houses will be built when prices are stable. Then both consumers and builders can make better decisions.

The decision to build isn't always a 'better decision'. If the prices were stable and high, but way overvalued, it would be a terrible decision to build.

[Kidlicious]

Originally posted by Patroklos


Home ownership is not an indicator of economic success, as this bubble is clearly showing. The simple fact is homeownership is declined becasue millions who had no buisness owning homes (or at least the homes they did at the price they bought them at) were alowed to do so.

They were prestige buys. I bet the wish they had decided to buy a Rolex instead and invested the rest of their their money wasted on a too big house they couldn't afford instead.

I don't know how you can say that people in California had no business buying houses. With the prices increasing like that you had to buy a house as soon as you could before you couldn't afford one.

[Ben Kenobi]

With the prices increasing like that you had to buy a house as soon as you could before you couldn't afford one.

Is that what you thought?

No wonder you got shafted.

[Patroklos]

I don't know how you can say that people in California had no business buying houses. With the prices increasing like that you had to buy a house as soon as you could before you couldn't afford one.

No, you do what I did, which is realize the housing market is inflated and make due with a crappy or even decent rental and save save save. Again, the home ownership is just a prestige thing if the money isn't right, and it hasn't been right for a very very long time. We have been talking about the housing bubble for years now, if you bought during that time, especially if you bought on a vaeriable interest rate, you did not have your financial interests at heart when you purchased. You had something else in mind, status.

Again, I have been ready to but a house or condo for 3 years now, was appaled at the prices and thus didn't buy. I lived in an apartment that served my needs even though I could have aforded far better because I had the long term in mind. Then this September came and went and things weren't to my liking so I still didn't buy. Now that I had my down payment saved I fugured I could at least rent a nice house in the meantime (The one I posted about, I moved in last week) and save more, albiet at a slower rate. But the point is the money wasn't right, so I didn't buy.

[Kidlicious]

Originally posted by Ben Kenobi
Yes, I agree that it has a bad effect on the economy. However, the house prices have been unsustainable for a long time now. It's basically how do you want to take your medicine? All at once or very slowly over a long period of time? This is a correction which has been overdue.

Likes like saying a manic depressive is better because they are depressed.

Only if they are withdrawing equity from their home. If you are using your home as a piggy bank to meet daily expenses, yes you are going to be hit very, very hard by negative equity.

No, there is something called a wealth effect. This has been observed after the 70s. People spend money according to their wealth. If their wealth increases they spend more, and if their wealth decreases they spend less.

Wow. So the poor people who don't have houses don't matter?

They are not economically viable. Hey, it's your system of choice, not mine.

You've definitely jumped the shark here. I think it's mixed blessings, yes some people are hurt by the correction, whereas these worthless people are actually helped because now they can actually afford a house.

It's not. It's well known that housing prices affect consumer spending. Look, it's happening right now.

True, but if Californians hadn't bid up the prices of their houses, and kept them at a more reasonable level, they wouldn't suffer as much.

It totally depends on where you are as to whether this is a crisis or not. Places that missed out on the boom aren't going to suffer at all.

What does that have to do with what we are talking about? You just avoided my point.

Depends. We shall see. As with anything some are hurt and some are helped. Don't you think that the people who now can afford houses are going to spend more when they buy one up?

Yes, I do, but as you know home sales are down.

The decision to build isn't always a 'better decision'. If the prices were stable and high, but way overvalued, it would be a terrible decision to build.

Stable and overvalued doesn't make any sense. If they were overvalued they couldn't have been stable. Every business person should know that.

[Kidlicious]

Originally posted by Ben Kenobi


Is that what you thought?

No wonder you got shafted.

No, I couldn't afford a home. I could barely afford to rent when I lived in CA.

[Kidlicious]

Originally posted by Patroklos


No, you do what I did, which is realize the housing market is inflated and make due with a crappy or even decent rental and save save save. Again, the home ownership is just a prestige thing if the money isn't right, and it hasn't been right for a very very long time. We have been talking about the housing bubble for years now, if you bought during that time, especially if you bought on a vaeriable interest rate, you did not have your financial interests at heart when you purchased. You had something else in mind, status.

Again, I have been ready to but a house or condo for 3 years now, was appaled at the prices and thus didn't buy. I lived in an apartment that served my needs even though I could have aforded far better because I had the long term in mind. Then this September came and went and things weren't to my liking so I still didn't buy. Now that I had my down payment saved I fugured I could at least rent a nice house in the meantime (The one I posted about, I moved in last week) and save more, albiet at a slower rate. But the point is the money wasn't right, so I didn't buy.

If you would have lived in CA, people would have called you crazy. Home values had been increasing ever since anyone can remember. You had to own a home or end up paying more and more rent every year. It's kind of hard to make it that way.

[Ben Kenobi]

Likes like saying a manic depressive is better because they are depressed.

No, the market doesn't work that way.

It's like saying it's bad for a business to go bankrupt. Yes, it's bad for the owners and anyone who had that as their investment. But for people who didn't have anything staked in it, how are they hurt?

They could even be helped, if the business went down was poorly run. That's the case of many of these mortgages, yes it's painful, but the people who aren't being hurt are the folks who don't own a house.

No, there is something called a wealth effect. This has been observed after the 70s. People spend money according to their wealth. If their wealth increases they spend more, and if their wealth decreases they spend less.

I think that is completely dependent on whether someone is a spender or a saver, which only changes because those who have more wealth can spend more then when they didn't.

They are not economically viable. Hey, it's your system of choice, not mine.

Not my argument at all. I'm saying that they are a very significant proportion of the economy, and that they aren't harmed much at all by the folks who have bad mortgages.

If you are going to put words in my mouth, make sure you get them right.

It's not. It's well known that housing prices affect consumer spending. Look, it's happening right now.

What affects them more, is not the negative equity, but if they cannot keep up their mortgage payments when interest rates increase.

The loss of value is much less important then the interest rates in reining in consumer spending.

Yes, I do, but as you know home sales are down.

Which was happening even before the crisis. They won't turn up until the prices have come down.

Stable and overvalued doesn't make any sense. If they were overvalued they couldn't have been stable. Every business person should know that.

Many things can stay overvalued for quite some time. I don't know where you are getting your economics from, but so long as demand holds out many things can stay overpriced. It doesn't have to keep rising to be inflated.

[Ben Kenobi]

If you would have lived in CA, people would have called you crazy. Home values had been increasing ever since anyone can remember. You had to own a home or end up paying more and more rent every year. It's kind of hard to make it that way.

It all depends on when you buy.

If you buy before things start rising and rising, then you will have done very well for yourself if you locked in a cheap fixed rate mortgage.

However, someone like Patroklos is well aware that housing has been rising and rising, and the general assumption is that the housing is overpriced. The issue shouldn't be to get in as soon as possible before prices rise again, but when they will fall to more reasonable levels.

Yes, it's more expensive long term to rent but a bad mortgage is far more expensive in the long term then to rent.

A good mortgage is cheaper, if you have a few things in place.

1. A stable job, and a desire to stay in the community. Doesn't make sense to buy if you are going to move in 6 months.

2. The need for extra space. You get married, etc. For most folks a small apartment is all they need and they can get that for less then the mortgage they would be paying on a house.

3. Money saved for a down payment. This is huge at reducing the amount you have paid. If you are just starting out, you have to save up to get that decent down payment.

There are exceptions, but none of them really make sense if the housing market starts falling. People have been getting away with lots of things, variable mortgages, no down payments, etc.

[Bosh]

Originally posted by Oerdin
Energy isn't a problem in Vegas due to the numerous dams on the Colorado. The big problem for them long term is water. Water is a huge issue in the west and most of the treaties divying up the water rights were signed in the late 19th century or the first third of the 20th. That means California gets the bulk of the rights (as it dominated the west in the 19th century) and the fast growing interior states are left fuming about the unfairness of how resources are allocated.

Personally, I don't mind the current allocation of resources.

Ya, what's eventually going to have to happen is the end of heavily irrigation-based agriculture in a lot of the west, water will simply get too expensive to make it sustainable...

[Kidlicious]

Originally posted by Ben Kenobi
No, the market doesn't work that way.

It's like saying it's bad for a business to go bankrupt. Yes, it's bad for the owners and anyone who had that as their investment. But for people who didn't have anything staked in it, how are they hurt?

They could even be helped, if the business went down was poorly run. That's the case of many of these mortgages, yes it's painful, but the people who aren't being hurt are the folks who don't own a house.

The Benefits of Price Stability

I think that is completely dependent on whether someone is a spender or a saver, which only changes because those who have more wealth can spend more then when they didn't.

Wealth effect

Not my argument at all. I'm saying that they are a very significant proportion of the economy, and that they aren't harmed much at all by the folks who have bad mortgages.

The only thing that makes the significant is the fact that they do certian jobs. As far as consumer spending and economic stability go they are insignificant. They are smaller in numbers and much smaller in income. It's the middle class that drives the economy.

If you are going to put words in my mouth, make sure you get them right.

I wasn't putting words in your mouth, and I was making what you said right.

What affects them more, is not the negative equity, but if they cannot keep up their mortgage payments when interest rates increase.

The loss of value is much less important then the interest rates in reining in consumer spending.

Oh bull owny! We are talking about the whole economy here. Not everyone is affected by negative equity, but every home owner (at least most as it seems) is affected by lower equity.

Which was happening even before the crisis. They won't turn up until the prices have come down.

This wasn't happening to this extent before the crisis. That's why it's a crisis

And just because prices are falling doesn't mean home sales are going to increase. That's going to take some time. First, the banking system has to recover, and they consumer confidence has to be restored. And they prices are going to shoot up becuase less people are going to be selling at that point, and there wont be any new homes built yet. So actually homes sales aren't going to increase until prices recover, not when they get low enough. NOt efficient at all is it.

Many things can stay overvalued for quite some time. I don't know where you are getting your economics from, but so long as demand holds out many things can stay overpriced. It doesn't have to keep rising to be inflated.

Geez Ben, demand doesn't ever hold up when things are overvalued, that's why people say they are overvalued. Why else would you say things are overvalued?

[Ben Kenobi]

The Benefits of Price Stability

Yes, so long as the price reflects the value.

The only thing that makes the significant is the fact that they do certian jobs.

Umm, no. There are only 65 million homes out there. That means that with an average household size of 2.2, that 150 million Americans are accounted for.

Since there are 300 million, that means that 110 million adults and 40 million children are in homes that are in a mortgage. That's half of America.

Are you seriously saying that the other half of the US has NO impact on consumer spending?

It's the middle class that drives the economy.

There are plenty in that group that rent a home and do not own one.

Oh bull owny! We are talking about the whole economy here. Not everyone is affected by negative equity, but every home owner (at least most as it seems) is affected by lower equity.

How are you affected by lower equity unless you plan to sell?

And just because prices are falling doesn't mean home sales are going to increase.

True, if demand drops then all that will mean is that eventually the sales will match the demand.

That's going to take some time. First, the banking system has to recover, and they consumer confidence has to be restored.

First you have to work through the excess inventory before the supply can come anywhere close to matching the demand.

And they prices are going to shoot up becuase less people are going to be selling at that point, and there wont be any new homes built yet.

Hmm? Not necessarily.

Price will only increase if demand increases beyond the supply.

Even as prices drop, things won't be restored until this glut of houses is off. Then and only then will the prices stop falling and reach an equilibrium.

Then, after some time later, demand will increase again.

So actually homes sales aren't going to increase until prices recover, not when they get low enough. NOt efficient at all is it.

Good, the fewer people who sell, the sooner prices will recover.

Geez Ben, demand doesn't ever hold up when things are overvalued, that's why people say they are overvalued. Why else would you say things are overvalued?

Everything has a certain value associated with it. The land plus the building cost for the home will be worth something.

In many places, (not all!), the prices are really out of whack. As you said, the prices have been going up for 20 years. That says to me they are massively overvalued, and yet have consistantly commanded a price above what they are worth.

[snoopy369]

Average household size of 2.2?? You're insane. It's at least 2.6, and that number is highly misleading in this discussion because it misrepresents a lot of people who are not included in it (for example, people who buy condos, which are almost certainly not in the 65m house number you quoted).

[Kidlicious]

Ugh! I give up trying to get through to you on this one Ben.

"First you have to work through the excess inventory before the supply can come anywhere close to matching the demand."

You just continually state that supply matches demand. If that were so prices wouldn't fluctuate like they do. There's always a shortage or a surplus, and the reason for that is speculation. That is people buy and sell houses under the expectations of future prices.

I give up.

[chequita guevara]

Originally posted by Patroklos
Again, the home ownership is just a prestige thing if the money isn't right, and it hasn't been right for a very very long time.

No, a lot of people bought when they could barely afford to do so (or were just over the line) because they had a real fear that if they didn't buy now, there were never going to be able to afford a home. I certainly felt that way, though I wasn't about to risk foreclosure and bankruptcy. I could have bought, but I simply did not believe the person who was telling me that no matter how bad my credit was, I could still buy a house. I'm glad I didn't believe him, because prices are dropping rapidly here. Course, I'm still a credit risk, so now I many not be able to get a loan.