Why does society see rapid price inflation on houses a "good thing" while viewing rapid price inflation on other goods and services a "bad thing"?
July 20, 2006
HousingPanic Stupid Question of the Day
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It's because peole w/o power do not own homes. People w/o power are hurt more when there's a general inflation. Inflation is like added tax to the powerless..
to add to my earlier comment: "own" doesn't mean ARM 110% of the home's equity.
YES that's exactly what the empowered want them (the carpenter, eg) to think... that they "are" in charge... but really it's the banks, the real power who'are in charge and continuing the subjugation of the powerless...
i really sound like a left winger but just think about it...
The US public is illiterate when it comes to financial stuff...most probably don't know what a bond is or how interest rates work.
They have been spoiled and flattered by commercial propaganda about how they deserve all kinds of great things- big houses, big cars etc. Part of this process has been to convince the public that it's OK to disregard financial responsibility and to go for the consumer gold.
Also operating here is the American belief that they will win the big eventually if they just keep rolling those dice.
Why do you always let the cat out of the bag...
More people own homes.. (own = own or debt-to) So rise in home prices have direct positive impact. All other increases have negative outcome due to higher costs of living.
http://hosted.ap.org/dynamic/stories/D/DENVER_SMOG?SITE=7219&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2006-07-20-06-36-53
denver smog
Um, you're all off. The Fed, which has the biggest influence on asset bubbles, couldn't care less how "big" homeowners want to feel.
The Fed is owned by commercial banks, not by the U.S. government, and it represents the banks' interest. They care only about the rentier class--the coupon-clipper investors who make money through asset appreciation rather than working for a living or even starting real businesses.
These people never want an asset bubble popped, obviously; it only adds to their wealth. But they hate inflation. First, because it destroys the value of cash assets. Second, because it deprives them of cheap labor, which in turn erodes high corporate earnings.
Remember, this tolerance for asset inflation didn't just affect housing. It affected stocks before that, when the Fed could have completely squelched the dot-com Ponzi scheme simply by tightening brokerage margin requirements.
Once housing pops, look for the Fed to try to prop up some other asset bubble--commodities, RMB, who knows?--to satisfy its rentier masters.
Ultimately this policy is doomed. It has the effect of allocating capital to completely non-productive assets. Think how many dot-com entrepreneurs are still rich, even though the companies they founded never earned a dime. Or how many flippers really did get rich selling condos at inflated prices. Eventually, wasting so much money leaves the economy without any gas.
You can't take a HELOC out on a car, sweater, gallon of milk or piece of fruit.
I think your off Peak. The question is about society as a whole and not The Fed. Everything you say is correct, but the average person doesn't understand The Fed. The average person doesn't know who the Vice President is, much less that Ben Bernanke is The Fed Chairperson. The average person just wants to look important to their neighbor, and having items that appear to be more valuable is how they do it. If Joe Sixpack can say that he bought a home for X and now it's worth X+Y he is happy.
Completely off topic:
AWW, CUTE!
If you let you're investment property go into foreclosure but you have other assets like your primary home and cash in the bank, can they go after your assets?
Because if you buy a home in a traditional sense with a downpayment, and a mortgage you can handle, you are building an asset base. With anyone able to get a mortgage today, the option is open to (almost) all. At a minimum, the asset will pace inflation long term.
People need to "rent" anyway if they want to live. This is not communism where everyone is issued a house. You can rent a property, or you can rent money and control an asset.
The problem is the asset is leveraged by the rented money. If you are not careful in how long you hold, the type of mortgage, and how much equity you put in (downpayment), you can get underwater. Guess what, the "rich business class" have this problem all the time when they borrow money to build a factory, and have business conditions turn against them. Again I say we are more democratic for the everyman. With potential, there is also risk....
Welcome to econ 101 for the masses...
In regards to my previous post, I am still a believer in a current housing bubble. Same as business investment bubbles, when the traditional "rent" on the place is lower than "owning", the asset may have outpaced it traditional economic performance. Of course this gives rise to "new era" thinking which feeds the bubble, and eventually it corrects. Same with business investment, same with houses.
It was fueled this time by a more democratic mortgage lending process since traditionally people lived in houses and tried to keep them, rather than flip them for profit.
Having seen the panicked look on the face of some buyers when they get to the page in their closing docs showing how much interest they'll be paying over the life of the loan, I'm convinced most people don't even understand the simple idea of compound interest. Something they should have learned in elementary school.
David in JAX, you're right.
Average people buy houses once or twice in their lifetimes. They buy milk and bread every week. Rapid price inflation affects them adversely because most people have no immediate control over the wages they earn.
BTW price inflation at a low, steady rate, is a good thing. It means the supply of money is growing and people can be optimistic about the future. In healthy economies, that increase is usually the result of better productivity or improved capacity.
Now that we've stopped pretending to be a republic and are fully into this "democracy" thing (as in Senate and House), watch for the rescue plan from Congress. When the pain gets bad enough, and voters start to whine loud enough, dickheads in Congress will sponsor bills to bail them out.
Anonymous said...
If you let you're investment property go into foreclosure but you have other assets like your primary home and cash in the bank, can they go after your assets?
~
They can and they will, especially if you took out a HELOC against your "investment" property's "equity".
Only if you personnally own the investment property or you have personally guaranteed any of the debt. They can also come after you if you are protected by holding the property in an LLC (for example) and you have the LLC in a fraudulent manner that caused it's failure.
The last sentence in the previous post should have been:
They can also come after you if you are protected by holding the property in an LLC (for example) and you have RUN the LLC in a fraudulent manner that caused it's failure.
Me watch TV, Me go to work, me pay taxes, me chase the carrot. ME SLAVE TO UNCLE. Make UNCLE product, Uncle get stronger.
I rent my current house for less than half what the mortgage payment would be and I won't have to shell out and replace the roof and appliances that will wear out in the next 3 years.
http://www.nizenotes.com/
New Residential Construction Down
Here's an example of why the Fed's just stopping interest rate hikes won't be enough to save the economy from a pretty severe downturn. The rate hikes to date are already doing damage, as numbers from a joint release, out today by The U.S. Census Bureau and the Department of Housing and Urban Development, clearly indicate.The early stages of the downturn are pretty clear.
Building Permits
Privately-owned housing units authorized by building permits in June were 4.3 percent below the revised May rate and is 14.9 percent below the June 2005
Single-family authorizations in June were 6.3 percent below the May figure.
Housing Starts
Privately-owned housing starts in June were 5.3 percent below the revised May estimate 11.0 percent below the June 2005 rate.
Single-family housing starts in June were 6.5 percent below the May figure.
This question is easy. "Home owners" like "price appreciation" because they think they can benefit from it by selling the house for more money than they paid for it. But when you have to pay more for a box of Kleenex, you don't see any personal way of profiting from it. You can't resell it at a higher price; you just end up paying more money for it.
Owners %100 equity and lenders >%100 equity are the real winners.
If you have a 600,000 mortgage then you are a renter for life, renting your house off the bank and paying them interest on top of the rent! lol
Actually mr mortgage if 1400 I took out in 2003 for my 1700 sq ft shack is 400 less than what my neighbor pays rent for the same 1700 sq ft shack. I am 'lucky' I got in at the rise in 2003. With no skin either, 100% financing for 227k. Other neighbor just sold same home for 430k. Evne if the bottom falls out, I still sitting pretty.
I love my country but it seems like we want to fail.
This is the admnistrations goal..Great economic Build up, then watch it crash, and we have em right where we need them, by the balls...typical neocon way of thinking...and i see it coming to foot everyday...And fast!
Guns and ammo that is all.
Bring on the insults..Anonopuss
I've often thought about moving out of the country myself and watching all this unfold from bermuda!
There has never been a bigger
difference between the two parties in my 49 years.
Republican answer for every question ... More Jesus more guns!
Wake up America the Republican party is doing nothing for you. Its all give on our part and all take on the part of the mega weathly who grow richer off of our hard work.
Name one thing the repubs have done for you!
"The downturn in the housing market so far appears to be orderly,"
SO FAR! For you dufi that thinks that means no panic
to come you are reading a
lot into someting that simply was not said.
Noodles opines: "So Canada here I might come in about 5 years"
You can head North to Canada and leave America, but what makes you think American won't eventually "find" you again? The USA is an empire in the making and it will need resources to fend off the growing Chinese empire. Mexico has a younger demographic and workers who can breed and pay taxes. Canada has land and resources. My guess is that twenty years from now, both will be annexed territories of the U.S. and the three will constitute the North American Empire.
Can't happen you say? Take a look at history, this story has played out dozens of times. So your expatriation may be shorter-lived than you think. Pick your poison as the two great empires grab the people and resources.
i guess we are starting to see the reverse of the wealth effect.
That's right.
And along with the reverse of the wealth effect, another factor goes into reverse- the multiplier effect that had arisen from RE associated spending ie furniture, cars, fixtures, electronics, tools, etc.
Add that to the end of the house AMT consumer money machine and you've got a great little recession brewing. And Bernanke can't do anything about it because loosening up the taps will collapse the dollar.
SittinPat you ass.You were nothing more than LUCKY to buy a before the bubble. You come across as a pompous ass thinking you are some sort of financial genius for timing it and everything should have done it like you. Again, you were lucky! It is way wiser to rent now than to go out and buy a home now.
sittinpatsandiego said in the long run you can not go wrong with Real Estate - I agree but when is the right time to start?
I wished that I Owned outright in San Diego ( no payment no rent ) just laying at the beach looking at the View. but that an't going to happin - sittinpat lucked out that is all
Shitting your pants in San Diego??
sittinpattsandiego said, "If I was 30 and not 60 Yes I would because in 10 years I believe it will be worth more than it is now -and rent will be more than the Payment would be than"
That's right, it's going to take about 10 years for rent to exceed the cost of a monthly mortgage payment. Why not rent for 1/2 the cost now and then purchase in 9 years, right before houses start appreciating again?
SittinPattSanDiego:
I'm sorry, but only a fool would buy right now in San Diego. In case you missed the headline, year over year median prices are FALLING, repeat, FALLING! Forclosures have quadrupled within the last several months and will continue to do so. Inventory is piling up at a rate that will reach record proportions before long. Investors are pulling out, owners are overextended after having taken out equity loans or bought with AMRs. Things are falling apart.
So, again, only a fool would buy right now in San Diego.
>>> RE: People knocking sittingpatinsandiego
People saying he was lucky assume that they can time the market, as opposed to investing for the long term. It's is hard to time when to buy, and when not to buy.Hey, I thought I was paying a crazy price for my lake and mountain view place in 1998, and now I see townhouses in a random development for the same price I paid. My mortgage was $2600/mo and now would be $5000.
Yes we are in the mother of all housing bubbles, but 90% of the time buying and holding for 10 years will work.
>>> BTW price inflation at a low, steady rate, is a good thing. It means the supply of money is growing and ...
Not really. Inflation is really when the money supply grows faster than the economy. If the money supply grows at the rate of the economy, then there is no inflation. If the money supply stays they same and the economy grows, you have deflation.
Keynes did say that a 3% annual inflation would be good as an "open trick" on the working classes. This is because they expect to get a 3% a year raise, even if their production is the same. In order to give them the appearance of wage growth, you inflate the money supply (faster than the rate of economic growth) by 3% giving them their "raise" but keeping the economy the same.
Keynes was an interesting guy, but hated by traditional Austrian economists.
"Keynes did say that a 3% annual inflation would be good as an "open trick" on the working classes."
It may be a trick to some economists, but Rational Expectations theory says otherwise. Perfect balance can never be achieved in any real economy so the notion of monetary policy matching output is just for textbooks. The dynamic of optimism is crucial to stability and growth because it is a key element in buying and investing decisions. Again, I'm talking about reasonable, "normal" levels of optimism. We all know what happens when consumers and businesses veer too far from that path - LOL!
You don't have to wait 20 years to see the Canadian & Mexican border disappear. Just visit www.spp.gov
>>> there is not 10 year rule. not even an about 10 years, rule.
I did not try and imply that there is a 10 year rule. It is just a period I chose that a traditional buyer of a house to live in would *likely* be OK. Yes, of course there are periods where you come out poorer, such as Japan for the last 14 years.
My comment is really towards the traditional buy a house with a fixed mortgage and live in it model. This is as opposed buy a house because its a leveraged investment asset.
>>> Rational Expectations Theory
I give Keynes credit for understanding the mix between economics and human behavior (they really are mixed)
"That is why you will always be a looser a real big L for Loser :
This is the 1st anon that 'ShittedOnPatInSanDiego". Hey you arrogant fvck. I sold my home at the peak last summer. A home in Irvine, SoCal. Sold it for 685k. I am sitting fat on 450k profit.I am 39 years old. Question: did you never rent? Did you go straight from your dorm or moms house to your first house? Stop being such a dick.
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