[quote=CA renter][quote=andymajumder]Not a homeowner…but I would I careful what I wish for. Las Vegas probably has reached or is close to 2000 nominal pricing. But, if that were to happen in SD or in most parts of CaliforniaUS, we would probably be in a depression. Eventually…it doesn’t matter much if you are renter or a owner if you don’t have a job and the country is in a sever depression, things will be very bad for all of us.[/quote]
I question this undying belief that lower housing prices would cause a depression.
Since housing prices are determined by the prices paid by new buyers, high housing prices are actually a drain on the economy. In order for any *sustainable* benefit to be derived from high housing prices, the sellers would have to sell and rent or scale down to a less expensive home — freeing up the “profits” to be spent somewhere else in the economy.
People mistakenly believe that the HELOCs and cash-out refis enabled by higher housing prices are somehow a net positive. They aren’t. The only thing someone is doing when the HELOC/cash-out refi their home is adding on to their debt burden *and using the house as collateral* which simply means that they are giving rights to the lender to foreclose on them if the debt is not paid as per their agreement. Debt, by its very nature, pulls economic activity forward *at the expense of future economic activity.* As a matter of fact, debt pulls more from the future than it brings to the present because of the interest payments that need to be made.
Lower housing prices are exactly what’s needed to allow us to rebuild a **sustainable** recovery that doesn’t harm future activity. Lower prices free up more money as wages — with no debt offset — can be spent on more productive/beneficial endeavours.[/quote]
My wife tells me all the time that she wants our payment to be under $XXXX so that we can “take lots of nice vacations”. This speaks to your theory. If we are house poor, I’m not saving up and getting a new TV any time soon. And since the free money spigot has been shut off, I can’t borrow from the house to buy one either.
Lower housing prices would definitely have me spreading more money around the economy. Frankly, I’m allergic to saving anyway 🙂
