Why are high housing prices good for the economy?

[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.

[pemeliza]

“Sellers are forced to take unexpected huge losses on their supposedly safe investments.”

Since when do “supposedly safe investments” double in value over the course of a few years? No! Housing is not a supposedly safe investment over the short run. Long term it is because of the devaluation of a fiat currency and because of population increases, finite supply of land, etc.

The housing market has been through cycles in the past and we all survived. The checks and balances of a free market system are what makes this country work.

[pemeliza]

“Sellers are forced to take unexpected huge losses on their supposedly safe investments.”

Since when do “supposedly safe investments” double in value over the course of a few years? No! Housing is not a supposedly safe investment over the short run. Long term it is because of the devaluation of a fiat currency and because of population increases, finite supply of land, etc.

The housing market has been through cycles in the past and we all survived. The checks and balances of a free market system are what makes this country work.

[pemeliza]

“Sellers are forced to take unexpected huge losses on their supposedly safe investments.”

Since when do “supposedly safe investments” double in value over the course of a few years? No! Housing is not a supposedly safe investment over the short run. Long term it is because of the devaluation of a fiat currency and because of population increases, finite supply of land, etc.

The housing market has been through cycles in the past and we all survived. The checks and balances of a free market system are what makes this country work.

[pemeliza]

“Sellers are forced to take unexpected huge losses on their supposedly safe investments.”

Since when do “supposedly safe investments” double in value over the course of a few years? No! Housing is not a supposedly safe investment over the short run. Long term it is because of the devaluation of a fiat currency and because of population increases, finite supply of land, etc.

The housing market has been through cycles in the past and we all survived. The checks and balances of a free market system are what makes this country work.

[pemeliza]

“Sellers are forced to take unexpected huge losses on their supposedly safe investments.”

Since when do “supposedly safe investments” double in value over the course of a few years? No! Housing is not a supposedly safe investment over the short run. Long term it is because of the devaluation of a fiat currency and because of population increases, finite supply of land, etc.

The housing market has been through cycles in the past and we all survived. The checks and balances of a free market system are what makes this country work.

[34f3f3f]

One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.

I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.

[34f3f3f]

One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.

I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.

[34f3f3f]

One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.

I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.

[34f3f3f]

One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.

I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.

[34f3f3f]

One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.

I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.

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