There's been a recent spate of articles describing how a minor uptick in the Case-Shiller housing price index means that the recession is nearing a close. Leaving aside some outstanding issues such as the looming ARM recasts (which might roll on for five years), it's remarkable that a slight uptick is being heralded as a 'green shoot.' But there's a very disturbing assumption whether or not one thinks housing prices will stop sinking.
We are assuming that housing prices should increase back to where they were ~2005 - 2006. Why would that be a good thing?
As I noted a while ago, houses cost far more relative to income than they have throughout most of the last four decades or so. What that means is that people are paying far more for housing--or, looked at another way, too much for housing. That means there's a lot of income that could be used for other purposes, ranging from private consumption (buying cool stuff) to public investment (taxing and doing government stuff). Instead, we're sinking that compensation for labor into housing.
To a certain extent, that might represent an increase in housing quality, but does anyone really think that housing quality increased nationally by two thirds from 2000 to 2006? (The median price rose from ~$150,000 to ~$250,000 during that period). This was driven by two things. First, housing prices were bid up due to rising income inequality--houses cost a lot because some people can pay that much. Second, everyone was given lots of funny money credit: if you were a biped not on life support, you got a loan. In other words, this was a classic bubble. And there's little evidence that the bursting of the bubble has overshot its mark--if anything, some more decreases might be on the horizon.
If we want housing prices to increase, we need to raise wages and incomes. That's what we should be worrying about.
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That depends in part on how much of the price rise is due to "more house" vs. "more for the same house." Looking around here, the sizes and features of houses from the last few years are dramatically different (as in, "more expensive") than from those 20 years ago. Never mind those 50 years ago.
There's more to prices than quality.
In my area, the big thing is the added cost for location. If you want to live close to the city, you are going to pay more because there's a large demand for houses that won't require you to make an absurdly long commute. As the population grows so does the demand, because they can't just magically create new close in property.
There is another way at looking at the rising housing cost verses income. Income should be rising more due to productivity but it has stagnated for several years. Some of that is due to globalization. Housing prices have always tended to rise, but it is income we need to keep better pace. Another part of the problem is that profits have been skewed more and more to a few with their multimillion bonuses which have not been deserved.
As far as ARMs, I hope they disappear for good. I never liked them. They are too much of a gamble for the average homeowner.
>>there's a large demand for houses that won't require you to make an absurdly long commute<<
Yes, but there is a sensible zoning policy that would allow places of work to be closer to residential areas. And changing zoning policies can happen quickly -- thus, the "value" of the house is dependent on an artificial buttress that could be quickly removed.
How much of this rise is attributable to the creative financing and mechanisms agents are using to disguise the actual sales price of a house? Reports are that instead of dropping the sale price of homes the agents are tossing in extras to make up the difference between the reduced value of a house and the price that gets paid on paper.
A local man got a Jetski worth a solid $8000. In effect he paid at least $8000 less for the house than what the paperwork shows. Bonds, vacations and special sweetheart deals with local car dealerships, all worth thousands, are other potential rewards.
Yes, there are reports of the markets firming up and even rising in certain areas. The question is, are we seeing a real effect or a feel-good illusion created to whitewash the devastation?
Seems to me there are a lot of people in the real estate and financial sectors who desperate to declare that the crisis is over so they can get back to the good old days when just standing in the flow of money could make you rich.
Lots of deep, resonate, calming voices telling people that everything is under control. That everyone can relax now because the worse is over. The bullet has been dodged. The crisis lived through. And while your feeling all warm about having stories to tell your grand kids about how you made it through the hard times to a new dawn ... that you can loosen your grip on your wallet. I will look after it for you.
Cherie -if you live in a large established city, as I do, Zoning changes are not going to move the major employers around or magically create new hosing where most of the neighborhoods are on the order of a century old. They also don't move the parks and recreational opportunities around. I paid a premium for my house that is bicycling distance from my work, and walking distance to museums and a zoo. There is nothing artificial or that could be quickly changed with re-zoning here.
Houses everywhere are grossly overpriced. I tend to lay the blame at this newfangled business of giving women their own money - naturally they spend it on nestbuilding.
It's woth noting that from a macroeconomic viewpoint, housing (beyond a point) is an expense, a luxury. A society that organises itself so as a considerable amount of its effort goes into building freestanding boxes for people to commute from and to is a society that will drive itself into penury.
Ditto for military expenditure, except where there's loot to be had.
Over-elaborate wars and houses: twin masculine and feminine follies.
Provided you were willing to accept a loan whose interest rate would, in 2 or 3 years, become dependent on a bond index - meaning you had to be a finance expert to have any clue what your monthly payments would be.
thanks
business of giving women their own money - naturally they spend it on nestbuilding.
It's woth noting that from a macroeconomic viewpoint, housing (beyond a point) is an expense, a luxury. A society that organises itself so as a considerable amount of its effort goes into building freestanding boxes for people to commute from and to is a society that will drive itself into penury.