I totally agree with you, jstoesz.

Having access to more debt is NOT good for the economy in the long run, IMHO. That’s the only “benefit” I’ve ever heard about that results from higher home prices — greater access to HELOCS and cash-out refis, which are exactly what *caused the problems* in the first place.

The only other way higher home prices might benefit some people (at the expense of an equal number of people) is if they sell and move down or rent.

IOW, you are right on. Low housing prices are a net benefit to the economy, just as low gas prices, low healthcare prices, etc. are a benefit. I’ve never understood the argument about low housing prices causing any kind of “crisis.” If you couldn’t afford your housing payments in the first place, you shouldn’t have bought. Anyone who was relying on ever-rising housing prices to pay off their mortgages were playing a fool’s game, and deserve to be foreclosed on. Nobody is owed a profit just because they mortgage a house, and being underwater should only matter when you actually need to sell.

I totally agree with you, jstoesz.

Having access to more debt is NOT good for the economy in the long run, IMHO. That’s the only “benefit” I’ve ever heard about that results from higher home prices — greater access to HELOCS and cash-out refis, which are exactly what *caused the problems* in the first place.

The only other way higher home prices might benefit some people (at the expense of an equal number of people) is if they sell and move down or rent.

IOW, you are right on. Low housing prices are a net benefit to the economy, just as low gas prices, low healthcare prices, etc. are a benefit. I’ve never understood the argument about low housing prices causing any kind of “crisis.” If you couldn’t afford your housing payments in the first place, you shouldn’t have bought. Anyone who was relying on ever-rising housing prices to pay off their mortgages were playing a fool’s game, and deserve to be foreclosed on. Nobody is owed a profit just because they mortgage a house, and being underwater should only matter when you actually need to sell.

I totally agree with you, jstoesz.

Having access to more debt is NOT good for the economy in the long run, IMHO. That’s the only “benefit” I’ve ever heard about that results from higher home prices — greater access to HELOCS and cash-out refis, which are exactly what *caused the problems* in the first place.

The only other way higher home prices might benefit some people (at the expense of an equal number of people) is if they sell and move down or rent.

IOW, you are right on. Low housing prices are a net benefit to the economy, just as low gas prices, low healthcare prices, etc. are a benefit. I’ve never understood the argument about low housing prices causing any kind of “crisis.” If you couldn’t afford your housing payments in the first place, you shouldn’t have bought. Anyone who was relying on ever-rising housing prices to pay off their mortgages were playing a fool’s game, and deserve to be foreclosed on. Nobody is owed a profit just because they mortgage a house, and being underwater should only matter when you actually need to sell.

[quote=jstoesz] But if prices drop 20% how will that contract the consumer demand for goods.
[/quote]

You’re forgetting the psychological aspect of perceived wealth.

Lets say I bought a house for $100k. It goes up, on paper, to $500k. I feel 400k richer, even though my expenses are the same and my “wealth” is unrealized. Same with stocks.

People are more likely to spend what cash they have flowing, rather than allocate it towards savings, if they feel wealthy.

Same thing could happen if I’d bought 1000 shares of Google at $200/share. It’s over $600/share today. I’d feel $400k richer, even though it could go down to $200/share before I sell it.

The issue isn’t so much housing prices effecting the economy – it’s that our economy is far to reliant on consumer spending to drive it. When people feel poorer (even if their cash flow is the same) they don’t spend.

[quote=jstoesz] But if prices drop 20% how will that contract the consumer demand for goods.
[/quote]

You’re forgetting the psychological aspect of perceived wealth.

Lets say I bought a house for $100k. It goes up, on paper, to $500k. I feel 400k richer, even though my expenses are the same and my “wealth” is unrealized. Same with stocks.

People are more likely to spend what cash they have flowing, rather than allocate it towards savings, if they feel wealthy.

Same thing could happen if I’d bought 1000 shares of Google at $200/share. It’s over $600/share today. I’d feel $400k richer, even though it could go down to $200/share before I sell it.

The issue isn’t so much housing prices effecting the economy – it’s that our economy is far to reliant on consumer spending to drive it. When people feel poorer (even if their cash flow is the same) they don’t spend.

“You’re forgetting the psychological aspect of perceived wealth.”

Very well said UCGal.

“You’re forgetting the psychological aspect of perceived wealth.”

Very well said UCGal.