HousingPanic Stupid Question of the Day

August 18, 2006

HousingPanic Stupid Question of the Day

If the housing bubble didn't pop, and home prices kept going up 10% a year, wouldn't that have kinda presented a problem for society?

45 comments:

Anonymous said...: House prices going through the roof are just a symptom of inflation. The pumped money supply, low interest rates, tax law that favors RE capital gains, and relaxed lending standards all combined to create this run up since '01. If the Fed and/or Asia keep pumping in the money, and lenders don't ask too many questions, yes it could go on for quite some time.; August 18, 2006 7:09 AM
Anonymous said...: sittinpattsandiego,

Yes older people benefited from prop 13, but it is not just speculators that have been punished by it, many first time buyers are punished heavily. But this is only the aspect of whether prop 13 is fair to different age groups.

To my understanding, a side effect of prop 13 is that people are more easily holding onto their properties. In the period of fast assets inflation, prop 13 has greatly reduced the relative cost of continued carrying of properties. This introduced artificial shortage of houses as people are easily holding onto their properties after leaving the region. However that is only my theory, as I dont know how much this has contributed to the housing runup.

Without prop 13, you still have the option to sell your house and move to places like Portland or Santa Cruz. Come on weather is no excuse ~_ Plus you would pocket some nice change for your retirement life ~_

On the other hand I have to admit that, even there is no prop 13 to favor long term owners, people would still hold onto their properties as appreciation expectation rises. So I would tend to think the impact of prop 13 on housing supply would be small.; August 18, 2006 8:59 AM
Anonymous said...: Inflation, first the gain, then the pain!

Gain = your investments, houses are higher in value. That's great!

Pain = Everything cost more now.

Greenspan let us feel the gain for 18 years. Be prepared for 18 years of pain.; August 18, 2006 12:18 PM
blogger said...: inflation always feels great (to asset holders) when it gets started, kinda like crack cocaine or a good swig of jack.

Then reality sets in, along with the headache and withdrawal.; August 18, 2006 12:46 PM
blogger said...: oh, point of clarification - I don't do crack or jack, just guessing

a good cabernet though...; August 18, 2006 12:46 PM
Anonymous said...: florida has the same kind of thing as prop 13 - tax increases capped at 3% per year, but you have to actually be living in the home, which seems fair to me. too bad they don't have the same thing for prop insurance ;-); August 18, 2006 1:01 PM
The Thinker said...: Back to the original question, skyrocketing housing prices is as bad for society as skyrocketing education and medical expenses. Americans are paying an ever increasing portion of their income to service debt associated with these necessities.

The only apparent up-side to skyrocketing housing prices is that existing home owners can ‘feel’ richer. But this is only an illusion because you have to live somewhere. You cannot sell your house and live on the streets. Remember, you cannot live off of your house as long as you have to live in your house!

Enter the DITECian vision where you can ‘cash out’ (sell your sole?) the equity in your home by taking out a second mortgage. Oh brother!

The problem is that the basics are priceless. How can you not pay for shelter, a good education and good medical care? That is where the capitalist system breaks down. Ultimately we will all pay any price we have to for these necessities, and soon enough we will.

The solution is socialized education, healthcare and (get this) housing. How long will we allow our comrades to be taken in by the Bourgeois?; August 18, 2006 1:49 PM
Anonymous said...: To siitinpatinsandiego:

The legal run around the revaluation of property taxes at time of sale is that the property is not owned by a person, but by a legal entity - like a Corporation. So the property is never really sold - all that it happens is that the ownership of the corporation that owns the home is changed, but not the home itself.

Thereby, there are numerous & numerous mansions that are paying taxes based on the assessment made on the last sale circa -late 70's.

And that is why, California's finances have gone to hell since then, especially the school systems.; August 18, 2006 2:00 PM
Anonymous said...: Just got my tax assessment for my house. BRAHAHAHAHAHHAHA!!!

I will pay $600 less than last year and my house value went up $75,000.

BRAHAHAHAHAHAHAHA!!!!!!!; August 18, 2006 2:06 PM
blogger said...: the question is:

If the housing bubble didn't pop, and home prices kept going up 10% a year, wouldn't that have kinda presented a problem for society?

if you'd like to threadjack, go to bubbletalk instead; August 18, 2006 2:48 PM
blogger said...: thinker - very good points as always

although I would suggest you can live off of your house - you just have to sell it and rent

but otherwise, the idea of inflatin as a good thing being an illusion is spot-on; August 18, 2006 2:53 PM
Anonymous said...: What should be done about today's inflation threat?

I hope I don't have to tell you that wage and price controls aren't the answer. They failed in 1971, and they would fail again today. At least it seems we've all learned that much from history.

All it takes is higher interest rates. The Fed should not have paused its rate-hiking cycle at last week's FOMC meeting, and it should not pause at the upcoming September meeting.

But the Fed did, and the Fed will. And when more evidence of inflation comes pouring in over the coming months, eventually the Fed will have to make up for lost time with much larger rate hikes.

As I wrote here last week, until that happens, the stock market can be a great place to be. But be ready to use rallies as selling opportunities. Inflation is on the rise, and it will draw the Fed into further rate hikes. When that happens, a recession will be inevitable — and stocks will pay the price.

http://tinyurl.com/gcrk8; August 18, 2006 3:09 PM
Anonymous said...: To my understanding, a side effect of prop 13 is that people are more easily holding onto their properties. In the period of fast assets inflation, prop 13 has greatly reduced the relative cost of continued carrying of properties.
___________________________________

That's kind of the intention of property, you buy it, it's yours, otherwise it's called rent. But the truth is, with the Fed Reserve and taxes, you're basically always renting from the gov. Why not cut people a break and let them actually own something for the most part, instead of giving them the bums rush off their own property via inflation and taxes. Or do you prefer to be a serf ot the system?; August 18, 2006 3:32 PM
Anonymous said...: It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent; August 18, 2006 3:36 PM
Bill said...: great read here folks,,interstig to say the least

http://tinyurl.com/kcp8z; August 18, 2006 3:52 PM
Anonymous said...: following up on the previous link,
try:
http://tinyurl.com/ednyw

for an example of an extreme post-inflation hangover.

Ah, if only my house could go up 10%/yr without consequence. In that parallel universe, my roulette system would probably work, too.; August 18, 2006 4:04 PM
Anonymous said...: Henry George addressed the social pathology of land price inflation more than 100 years ago, the phenomenon of "reasource rents" or "land rents" accruing to holders of land and the bankers who have the privilege of earning a portion of these rents (the economic concept, that is) in perpetuity without being assigned the obligation for the social costs associated with the privilege.

The result of the speculative land rents is that perpetual land rents to the speculator and banker are not taxed, whereas labor, capital accumulation, production, and consumption (all the things we want in an economy in relative abundance) are taxed.

Thus, we subsidize land speculation and rentier profiteering by taxing labor and production.

George's solution was "The Single Tax" or a tax on resource rents while eliminating taxes on labor, capital improvements, savings, and capital accumulation (which would include capital gains).

To put it simply (please refer to George's work for specifics), only the implied resource rent existing on land (or resource) would be taxed, that is, the relative value versus the costs to provide the necessary infrastructure support for the productive economy. Only the land is taxed, not the improvements or the capital and labor deployed. Houses, structures, and the like would not be taxed, only the relative value of the land.

Banks would not be able to lend 80% of the value of a property, retain ownership of the equity as an asset, and then stick the mortgagee with the tax while earning rentier land rents for 15-30 years or in perpetuity.

Speculators would not be able to hold land off the market from productive use to push the value higher without having to pay the tax, which would provide the incentive to use the land productively or to sell the land to someone who would make productive use of the land.

The intended result of the scheme is effectively to tax away the land resource rents, making land affordable and not subject to speculative rents, provide the necessary revenues for supportive infrastructure, while creating incentives for production, capital accumulation, and increasing labor product (productivity).

Needless to say, the members of the speculative-rentier class (who dominate Anglo-American society and much of the global economy today) were violently hostile to the proposal in George's day, whereas these individuals today find such a scheme positively contemptuous today.

Yet, the current system's results are extreme concentration of wealth and income to the top 1-10% of US society, a situation that rivals conditions in George's day during The Gilded Age of the late 19th century, a period that culminated in the Great Depression of that day, the worst in US history and a depression experienced around the world. The economic catastrophe included The Panic of 1893, a colossal property crash, and bank failures, the effect of which gave rise to and sustained the European imperial war regimes, the associated welfare state, the arrival of private central banking in the US from Britain, and the eventual emergence of the rentier-financier fiat-money system today.

What the West and the world need today more than ever is "land reform", i.e., synonymous with "tax reform", to free the landless (hopelesslly mortgaged) peasants from the "yoke of debt to the land".

A good place to start to learn more about Henry George and "The Single Tax."; August 18, 2006 4:10 PM
The Thinker said...: As I have said before, overall inflation hurts the wealthy and the lenders and perhaps helps to lessen the debt burden of the poor. And yes, inflation is a stiff tax on those with money in the bank and assets that don't exactly keep pace with inflation. (Watch out bubble sitters.)

Therefore, the conservative elite who serve the needs of the rich will stop at nothing to rein in inflation. They don't care if interest rates rise to 20% because they don’t borrow money, they lend it! They care about a strong dollar. Mark my words; we have not seen the end of this cycle of rate increases.

As I have said, my money is in the stock market, the S&P 500 because I believe that the stock market is a good way to beat inflation in the LONG TERM.

However, once we realize that it is better to rent than to own, the question becomes what to do with our money over the next 5 years while we wait out the carnage? Gold? Gold is not an investment, its the opposite of an investment. Sell short on companies who have the most to loose by the collapse of the housing bubble? Very risky given short-term market manipulation.

We must return to conventional wisdom, buy and hold, stick it out, stay the course, yada yada yada. Curl up with a nice low-expense index fund and don’t worry about the day to day fray. Don’t assume that society is on the verge of collapse because its not. In the 80’s we lived under the fear of global nuclear devastation with potential loss of life in the hundreds of millions and business was never better! Now our biggest worry is that some nuts will take down a plane or two and kill a couple hundred people. If we had nothing to fear but fear its self back in the days of Roosevelt when the world had some real problems then what do we have to fear today?

So wake up and get the hell out of your bunkers, sell your gold and your guns and stop fearing fear its self.; August 18, 2006 4:28 PM
Jip said...: Actually, the problem with the schools and police being underfunded is NOT due to Prop 13. It's because the politicians (and school admins) are not spending the funds the way they should be. Case in point, Los Angeles wants to spend $8 million to restore a mural (which should be done with private money, IMHO)while raising trash fees to pay for more police (so they say). In another state, my Mother (who just retired from teaching) had a Superintendant who spent $12 million renovating the admin offices while she had to take $300 a month out of her own pocket to run her classroom (including soap for the bathrooms). My conclusion (or $0.02) is that instead of wasting money on hiring their cronies and adding more middle management and other assorted B.S., it can be spent where it SHOULD be!!; August 18, 2006 4:31 PM
Anonymous said...: :instead of wasting money on hiring their cronies and adding more middle management and other assorted B.S.

This type of cronyism is now endemic to all sectors, public and private, of the country. There are no more so-called efficiencies left in America's economy. All notions of a well-oiled machine have given way to banana republic-isms.; August 18, 2006 5:08 PM
Anonymous said...: "my money is in the stock market, the S&P 500 because I believe that the stock market is a good way to beat inflation in the LONG TERM."

thinker, think again. the S&P 500 is in a secular bear market which will probably last into the early to mid 2010s in nominal terms and well into the late 2020s in real terms. your money is dead as a "hold and hoper", especially in inflation- and currency-adjusted terms.

go abroad, young man!!! we're repeating the imperial british pattern of the late 19th century to WW I. brits with money didn't invest in their own country; instead, they invested in Argentina, South Africa and other parts of Africa, the US, Canada, Australia/New Zealand, and Asia.

based on the long-term trend of S&P 500 earnings and the historical risk premium, fair value for the S&P 500 is 700s-800s and no higher than 1100s-1200s in 2010-11. this means you risk 30-40% over 2-3 years to get a negative real total return. to be kind, that's just plain dumb.

also, we're moving into the worst performing phase of the secular bear market from a long-term perspective when the 10-yr. real change of the index has historically turned negative and stayed there for years at a time (along with the 5-yr. real change). your money is dead if you stay with the hold-and-hope mentality.

the only people who make money in a secular bear market are the market makers and the minority of managers who are successful at retaining assets under management from which they scalp their fee income.

and, no, you won't follow this advice b/c most so-called investors are losers "in the long run", only they don't realize it "in the short run" and won't until it's much too late to do anything about it.

as to indexing, it has resulted in the S&P 500 being 80%+ of total equity market capitalization, of which the top 100 stocks make up 80% or so of the S&P 500's cap. so, 100 stocks make up over 60% of market cap, and virtually every growth, value, or other funds (outside of small-cap funds) own the same stocks as part of their top 25-50% of holdings in the respective funds, rendering the vast majority of funds "index funds" and subject to "market performance", which, during a secular bear market, is negative over 5 and 10 yrs. as time progresses.

Again, indexing in a secular bear market is just plain dumb.; August 18, 2006 5:08 PM
Anonymous said...: ""Can society maintain any cohesion if people move every 5 years?"

IMO we're already there, a nation of 300 million ants running around in circles carrying our bits of dirt. Banks, stock brokers, and politicians all make their living off of this activity and churn, so why should they worry about the consequences or try to discourage it?; August 18, 2006 5:13 PM
Markus Arelius said...: Any ever see Spurlock's "30 Days on Minimum Wage"?

Holy crap!; August 18, 2006 5:20 PM
Markus Arelius said...: Inflation is a very destructive economic phenomena. I think we Americans underestimate its effect on our daily lives and financial future. Inflation cannot be reigned in 100%, but a good portion of it can be controlled.; August 18, 2006 5:22 PM
The Thinker said...: Hey "whoda_thunk_it" I am interested in your point of view but I could not understand it. Can you try to dumb it down a bit?; August 18, 2006 5:28 PM
Anonymous said...: I'll summarize it for you thinker:

1) Buy low, and sell high.

2) Don't launch your dreamboat in a lake that is slowly draining.; August 18, 2006 5:53 PM
Anonymous said...: Keith, I love the McMansion living room pic you chose. That elephant looks right at home!; August 18, 2006 5:58 PM
Anonymous said...: Thinker (and others)...
I have read a great deal lately about the potential of our economic future. I have read that it's possible the fed is keeping rates low to allow the dollar to tank...thus allowing our national debt to minimize. I think the great debate is will the fed keep the dollar strong or let is tank? What are your thoughts on this? The case has been made for the benefit of both to the U.S. ponzi scheme. This call is very important to where we place our money.; August 18, 2006 5:58 PM
Bill said...: you know what else is even more screwed up?

http://tinyurl.com/fmm4k

Hard to belive people are still following the bullshit, but if you are broke and need more paper they will give you what you need..

Sign here..

"well should I read it first"?

No! No! just a formality, JUST SIGN DAMIT!; August 18, 2006 6:01 PM
Anonymous said...: Anyone in Ca get their Edison bill lately? My 1400 sq ft home cost $400 to keep cool last month. I can only imagine what the Mcmansion bills look like...ouch!; August 18, 2006 6:05 PM
Anonymous said...: FYI...I'm a huge fan of www.safehaven.com and 321gold.com Good sites if you would like to read more about what economists and investors think about our economic future. Of course, opinions vary on these sites...but I like that.; August 18, 2006 6:07 PM
foxwoodlief said...: Anonymous paid $400 in cooling for 1400 sq ft? Do you rent? Add that to your total cost of renting. My new house is 3400 sq ft, built like the rock of Gibraltor out of stone and brick, well insulated, and energy efficient and I paid $130 when temps were in the high 90s to low 100s for a month. In April we only spent $70 and half of that was tax and service charge.

People never look at the total cost of where they live and what they live in. We spend $60 a month on gas for two cars. We always pick a house that is within five or ten miles from where we work. We don't use both cars unless our schedules don't allow us to carpool. So if I have a mortgage of $1600PITI on a 1/2 mil house and now car payments, no credit cards, no kids, two professional incomes, how can you say renting for the same quality of life would be less expensive than owning?; August 18, 2006 7:49 PM
Markus Arelius said...: I agree. I am renting a shitbox single family 3 bed, 2.5 bath. The windows are porous 1979 crap and the insulation in general royally sucks (most OC homes have no insulation except the sprayed foam crap in the attic, which offers zero effeciencies). I love my parents home in Minnesota. Air-freaking tight. Warm in winter. Cool in muggy summer.

Still my CA electric bill wasn't as bad as yours ($40o), but I had to pay $220.; August 18, 2006 8:06 PM
Bill said...: $153 here in mass
I long for the day of the $34 electric bill

I put in a pellet stove last year..best investment for heat I ever made.

Heated all winter for $400; August 18, 2006 8:55 PM
Roccman said...: "So wake up and get the hell out of your bunkers, sell your gold and your guns and stop fearing fear its self."

too funny thinker...i take it you have read most all the posts at the oil drum?; August 18, 2006 9:09 PM
Dogcrap Green said...: ROFLMAO

Ummm Kieth. With us now IN DEFLATION, THAT TRUELY IS THE STUPID QUESTION OF THE DAY

ROFLMAO

You truely are the shoe shine boy; August 18, 2006 9:27 PM
Anonymous said...: dogcrap you continue to be the dumbest poster and bizarre

inflation is at a multi-year high and going higher with the fed's recent move

sure, houses are deflating, but they do not count toward the government's inflation data - only rents do

seek help, and read a book or two

nice blog by the way - when is that great housing goldrush going to happen again?; August 18, 2006 10:08 PM
Anonymous said...: Thinker,
study the US stock market from 1966-1982. That is a secular bear market.; August 18, 2006 10:36 PM
Dogcrap Green said...: We now have deflation

Yesterday we had inflation. Today we have deflation.

Metals are dropping like a rock and will collasp when China slows down.

Oil is falling and will fall harder.

These two factors will trickle down into every aspect of the economy.

DEFLATION IS THE NEW WORD.; August 18, 2006 11:41 PM
Anonymous said...: thinker, if you were the real thinker, you wouldn't be asking me to dumb it down, one suspects. but, in the event that it is really you, the venerable contemplator, read the post 9-10 times--slowly and deliberately--and then perhaps it will permeate the cognitive haze (or granite cranium).

if i told you that the S&P 500 P/E is headed to 8-9 at some point in the next 7-9 years and the 10-year real change of the index will turn negative and remain there for years, what emerges from your rock-like consciousness?; August 19, 2006 1:52 AM
Anonymous said...: How about that GOLD? LOL; August 19, 2006 2:41 AM
Anonymous said...: We ain't seen the last of Gold!; August 19, 2006 7:04 AM
Anonymous said...: With homes already over priced, the base not able to afford a home. What is going to happen when people realize that a second or third or...vacation home or rental property is just not justified or affordable, 'Dump' their inventory or just don't buy anything more. Then what?; August 19, 2006 7:38 PM
Anonymous said...: No one gives a shit about "society" unless by society you mean ME ME ME ME ME ME ME ME ME ME ME.

Thank the conservative movement for our radical individualism and runaway greed.; August 21, 2006 8:15 PM
Anonymous said...: No one gives a shit about "society" unless by society you mean ME ME ME ME ME ME ME ME ME ME ME.

Thank the conservative movement for our radical individualism and runaway greed.; August 21, 2006 8:15 PM

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August 18, 2006

HousingPanic Stupid Question of the Day

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