Why are high housing prices good for the economy?

[KamFongasChinHo]

Maybe this has been covered, or maybe someone can provide a good link or analysis, but why are high housing prices good for an economy? High prices for oil, food, clothing, gas, etc. are all bad, so why is it good to have homes so expensive? I understand that falling housing prices are bad if people didn’t put enough money down the banks are hurt and may constrict future lending which could hamper the economy. But it’s a zero sum game, if housing prices are lower people have more money to spend on other non-essential goods such as tvs, computers, luxury cars which keep people employed and the economy moving. Does inflated home wealth make people feel richer and thus spend more money (even though they may not have that much because they have a higher house payment).

I say lower the conforming loan amount and stop bailing stupid people and institutions out and let housing prices drop and we’ll all benefit in the long run.

[roughtrader]

I don’t think high house prices is the right metric. Increasing home equity is the key.

Rising prices means rising equity for existing homeowners. This means a perceived increase in wealth, which is only realized when they sell the home. HELOCs and cash-out refis were used to give the illusion of cashing out of the game with a big profit.

Rising prices also means rising appraised values. More tax revenue for governments, so it keeps them happy.

I don’t think homeowners now really care about the price of their home in the conscious sense. I think the unconscious, underlying and dominating perception of lost wealth and status is what is driving them batty. Those who never sold, never cashed out. Those who took HELOCs and cash-out refis never cashed out, even though they thought they did.

Those who sold for profit are the ones, who alongside first-time buyers, would like to see prices fall.

roughtrader

[roughtrader]

I don’t think high house prices is the right metric. Increasing home equity is the key.

Rising prices means rising equity for existing homeowners. This means a perceived increase in wealth, which is only realized when they sell the home. HELOCs and cash-out refis were used to give the illusion of cashing out of the game with a big profit.

Rising prices also means rising appraised values. More tax revenue for governments, so it keeps them happy.

I don’t think homeowners now really care about the price of their home in the conscious sense. I think the unconscious, underlying and dominating perception of lost wealth and status is what is driving them batty. Those who never sold, never cashed out. Those who took HELOCs and cash-out refis never cashed out, even though they thought they did.

Those who sold for profit are the ones, who alongside first-time buyers, would like to see prices fall.

roughtrader

[roughtrader]

I don’t think high house prices is the right metric. Increasing home equity is the key.

Rising prices means rising equity for existing homeowners. This means a perceived increase in wealth, which is only realized when they sell the home. HELOCs and cash-out refis were used to give the illusion of cashing out of the game with a big profit.

Rising prices also means rising appraised values. More tax revenue for governments, so it keeps them happy.

I don’t think homeowners now really care about the price of their home in the conscious sense. I think the unconscious, underlying and dominating perception of lost wealth and status is what is driving them batty. Those who never sold, never cashed out. Those who took HELOCs and cash-out refis never cashed out, even though they thought they did.

Those who sold for profit are the ones, who alongside first-time buyers, would like to see prices fall.

roughtrader

[roughtrader]

I don’t think high house prices is the right metric. Increasing home equity is the key.

Rising prices means rising equity for existing homeowners. This means a perceived increase in wealth, which is only realized when they sell the home. HELOCs and cash-out refis were used to give the illusion of cashing out of the game with a big profit.

Rising prices also means rising appraised values. More tax revenue for governments, so it keeps them happy.

I don’t think homeowners now really care about the price of their home in the conscious sense. I think the unconscious, underlying and dominating perception of lost wealth and status is what is driving them batty. Those who never sold, never cashed out. Those who took HELOCs and cash-out refis never cashed out, even though they thought they did.

Those who sold for profit are the ones, who alongside first-time buyers, would like to see prices fall.

roughtrader

[roughtrader]

I don’t think high house prices is the right metric. Increasing home equity is the key.

Rising prices means rising equity for existing homeowners. This means a perceived increase in wealth, which is only realized when they sell the home. HELOCs and cash-out refis were used to give the illusion of cashing out of the game with a big profit.

Rising prices also means rising appraised values. More tax revenue for governments, so it keeps them happy.

I don’t think homeowners now really care about the price of their home in the conscious sense. I think the unconscious, underlying and dominating perception of lost wealth and status is what is driving them batty. Those who never sold, never cashed out. Those who took HELOCs and cash-out refis never cashed out, even though they thought they did.

Those who sold for profit are the ones, who alongside first-time buyers, would like to see prices fall.

roughtrader

[hipmatt]

Since Americans don’t save, they rely on unsustainable home prices instead to make them feel wealthy. This can also be attributed to the media, TV shows like flip that house, and wealth icons such as Donald Trump. American sheeple have been tricked into overpaying (more accurately over borrowing)for their real estate for years, and despite the sensible logic posted by KamFongasChinHo, and even in times of correction like these, there is still that trend out there that equates owning real estate as the fastest way to riches.

It isn’t just high home prices that America is obsessed with, it is the constant and excessively high rate of home price appreciation that Americans have snobishly come to expect. This will allow the indebted homeowner to borrow even more money, and spend it excessively. You are right though, with such huge amounts of inventory around the country, prices should drop substantially, allowing the future homeowners to hopefully be able to pay for their skyrocketing cost of living.

[hipmatt]

Since Americans don’t save, they rely on unsustainable home prices instead to make them feel wealthy. This can also be attributed to the media, TV shows like flip that house, and wealth icons such as Donald Trump. American sheeple have been tricked into overpaying (more accurately over borrowing)for their real estate for years, and despite the sensible logic posted by KamFongasChinHo, and even in times of correction like these, there is still that trend out there that equates owning real estate as the fastest way to riches.

It isn’t just high home prices that America is obsessed with, it is the constant and excessively high rate of home price appreciation that Americans have snobishly come to expect. This will allow the indebted homeowner to borrow even more money, and spend it excessively. You are right though, with such huge amounts of inventory around the country, prices should drop substantially, allowing the future homeowners to hopefully be able to pay for their skyrocketing cost of living.

[hipmatt]

Since Americans don’t save, they rely on unsustainable home prices instead to make them feel wealthy. This can also be attributed to the media, TV shows like flip that house, and wealth icons such as Donald Trump. American sheeple have been tricked into overpaying (more accurately over borrowing)for their real estate for years, and despite the sensible logic posted by KamFongasChinHo, and even in times of correction like these, there is still that trend out there that equates owning real estate as the fastest way to riches.

It isn’t just high home prices that America is obsessed with, it is the constant and excessively high rate of home price appreciation that Americans have snobishly come to expect. This will allow the indebted homeowner to borrow even more money, and spend it excessively. You are right though, with such huge amounts of inventory around the country, prices should drop substantially, allowing the future homeowners to hopefully be able to pay for their skyrocketing cost of living.

[hipmatt]

Since Americans don’t save, they rely on unsustainable home prices instead to make them feel wealthy. This can also be attributed to the media, TV shows like flip that house, and wealth icons such as Donald Trump. American sheeple have been tricked into overpaying (more accurately over borrowing)for their real estate for years, and despite the sensible logic posted by KamFongasChinHo, and even in times of correction like these, there is still that trend out there that equates owning real estate as the fastest way to riches.

It isn’t just high home prices that America is obsessed with, it is the constant and excessively high rate of home price appreciation that Americans have snobishly come to expect. This will allow the indebted homeowner to borrow even more money, and spend it excessively. You are right though, with such huge amounts of inventory around the country, prices should drop substantially, allowing the future homeowners to hopefully be able to pay for their skyrocketing cost of living.

[hipmatt]

Since Americans don’t save, they rely on unsustainable home prices instead to make them feel wealthy. This can also be attributed to the media, TV shows like flip that house, and wealth icons such as Donald Trump. American sheeple have been tricked into overpaying (more accurately over borrowing)for their real estate for years, and despite the sensible logic posted by KamFongasChinHo, and even in times of correction like these, there is still that trend out there that equates owning real estate as the fastest way to riches.

It isn’t just high home prices that America is obsessed with, it is the constant and excessively high rate of home price appreciation that Americans have snobishly come to expect. This will allow the indebted homeowner to borrow even more money, and spend it excessively. You are right though, with such huge amounts of inventory around the country, prices should drop substantially, allowing the future homeowners to hopefully be able to pay for their skyrocketing cost of living.

[Eugene]

It’s not high housing prices that are good, it’s RISING prices. Or, more precisely, non-declining prices. Declining prices hurt financial institutions, homebuilders, and, most importantly, people trying to sell their houses. Declining prices undermine the entire American homeownership culture. 68% of U.S. households own their houses and the remaining 32% are mostly students, retirees, white trash, etc. – the kind of people who can’t or shouldn’t own houses. “Bitter renters” making 100k+ are maybe 2% of the population.

In the traditional American world view, buying a house is very different from, say, buying stocks. You move to a new place, you rent for a few months at most and then you buy a house. As long as you can afford monthly payments, you’re OK. A house is not supposed to be a financial black hole that can eat your down payment, and buying it is not supposed to be a risky financial move that can cost you $10,000 a month. You need a roof over your head, therefore you buy. Houses never go down and a year or two of inflation-driven appreciation is enough to pay closing costs should you need to move again. In this scheme, it does not matter much whether houses are cheap or expensive. All that matters is 1) can new homebuyers by and large come up with enough money for a downpayment, which may be 10% or even 5% of the nominal price? 2) can everyone afford to pay their mortgages?

A period of sustained price declines turns this whole scheme on its head. Sellers are forced to take unexpected huge losses on their supposedly safe investments. Some people would like to sell but can’t. Foreclosures shoot up. Homebuilders suffer because there’s not enough demand for new houses. Pent-up demand builds up because people choose to rent while they are waiting for prices to come down.

[Eugene]

It’s not high housing prices that are good, it’s RISING prices. Or, more precisely, non-declining prices. Declining prices hurt financial institutions, homebuilders, and, most importantly, people trying to sell their houses. Declining prices undermine the entire American homeownership culture. 68% of U.S. households own their houses and the remaining 32% are mostly students, retirees, white trash, etc. – the kind of people who can’t or shouldn’t own houses. “Bitter renters” making 100k+ are maybe 2% of the population.

In the traditional American world view, buying a house is very different from, say, buying stocks. You move to a new place, you rent for a few months at most and then you buy a house. As long as you can afford monthly payments, you’re OK. A house is not supposed to be a financial black hole that can eat your down payment, and buying it is not supposed to be a risky financial move that can cost you $10,000 a month. You need a roof over your head, therefore you buy. Houses never go down and a year or two of inflation-driven appreciation is enough to pay closing costs should you need to move again. In this scheme, it does not matter much whether houses are cheap or expensive. All that matters is 1) can new homebuyers by and large come up with enough money for a downpayment, which may be 10% or even 5% of the nominal price? 2) can everyone afford to pay their mortgages?

A period of sustained price declines turns this whole scheme on its head. Sellers are forced to take unexpected huge losses on their supposedly safe investments. Some people would like to sell but can’t. Foreclosures shoot up. Homebuilders suffer because there’s not enough demand for new houses. Pent-up demand builds up because people choose to rent while they are waiting for prices to come down.

[Eugene]

It’s not high housing prices that are good, it’s RISING prices. Or, more precisely, non-declining prices. Declining prices hurt financial institutions, homebuilders, and, most importantly, people trying to sell their houses. Declining prices undermine the entire American homeownership culture. 68% of U.S. households own their houses and the remaining 32% are mostly students, retirees, white trash, etc. – the kind of people who can’t or shouldn’t own houses. “Bitter renters” making 100k+ are maybe 2% of the population.

In the traditional American world view, buying a house is very different from, say, buying stocks. You move to a new place, you rent for a few months at most and then you buy a house. As long as you can afford monthly payments, you’re OK. A house is not supposed to be a financial black hole that can eat your down payment, and buying it is not supposed to be a risky financial move that can cost you $10,000 a month. You need a roof over your head, therefore you buy. Houses never go down and a year or two of inflation-driven appreciation is enough to pay closing costs should you need to move again. In this scheme, it does not matter much whether houses are cheap or expensive. All that matters is 1) can new homebuyers by and large come up with enough money for a downpayment, which may be 10% or even 5% of the nominal price? 2) can everyone afford to pay their mortgages?

A period of sustained price declines turns this whole scheme on its head. Sellers are forced to take unexpected huge losses on their supposedly safe investments. Some people would like to sell but can’t. Foreclosures shoot up. Homebuilders suffer because there’s not enough demand for new houses. Pent-up demand builds up because people choose to rent while they are waiting for prices to come down.

[Eugene]

It’s not high housing prices that are good, it’s RISING prices. Or, more precisely, non-declining prices. Declining prices hurt financial institutions, homebuilders, and, most importantly, people trying to sell their houses. Declining prices undermine the entire American homeownership culture. 68% of U.S. households own their houses and the remaining 32% are mostly students, retirees, white trash, etc. – the kind of people who can’t or shouldn’t own houses. “Bitter renters” making 100k+ are maybe 2% of the population.

In the traditional American world view, buying a house is very different from, say, buying stocks. You move to a new place, you rent for a few months at most and then you buy a house. As long as you can afford monthly payments, you’re OK. A house is not supposed to be a financial black hole that can eat your down payment, and buying it is not supposed to be a risky financial move that can cost you $10,000 a month. You need a roof over your head, therefore you buy. Houses never go down and a year or two of inflation-driven appreciation is enough to pay closing costs should you need to move again. In this scheme, it does not matter much whether houses are cheap or expensive. All that matters is 1) can new homebuyers by and large come up with enough money for a downpayment, which may be 10% or even 5% of the nominal price? 2) can everyone afford to pay their mortgages?

A period of sustained price declines turns this whole scheme on its head. Sellers are forced to take unexpected huge losses on their supposedly safe investments. Some people would like to sell but can’t. Foreclosures shoot up. Homebuilders suffer because there’s not enough demand for new houses. Pent-up demand builds up because people choose to rent while they are waiting for prices to come down.

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