Economics Question - Housing Prices

[Arkaign]

I have been listening to economists and reporters go on for years now about the housing crisis, mortgage defaults, foreclosures, etc, etc, the whole 9000 yards on the subject.

Something that I haven't really heard anyone say is that maybe it's good in some ways that housing prices have fallen? Really, why should we work so hard to inflate and bubble up the housing market, when all that really does is fuel house-flippers, predatory lenders, and a ton of other not so great things? All of which result in a higher % of an average family income going towards rent or mortgage due to the price inflation.

I realize that this is a rather simplistic view, and that there are benefits to the valuation of real estate that play a larger role in the general economy, it just seems like things got out of control somehow. In many cities like Boston and so forth, it takes an average dual-income family a drastically outlandish number of years paying statospheric mortgage payments even at low interest to end up owning their home, and the sky-high taxes just make it worse.

To be honest, I'd rather see housing prices stay flat, and if possible for the economy to improve in more productive ways (manufacturing, intellectual property, R&D, etc) rather than bubble up again on speculative investments.

 

[zerocool84]

It's called supply and demand. The places where it's expensive, real-estate is at a premium and people are going to have to pay premium prices if they want to live there. Yet you have places like where Dr. Pizza lives and you can own a home for two bits.

 

[RocksteadyDotNet]

You're absolutely right.

Houses shoudn't be treated like a investment, they're somewhere for people to live.

People NEED houses, but people act like they just another investment class and that it's ok if they prices go though the roof.

If the price of food or petrol went into a bubble people wouldn't be very happy about it would they?

 

[Arkaign]

It's called supply and demand. The places where it's expensive, real-estate is at a premium and people are going to have to pay premium prices if they want to live there. Yet you have places like where Dr. Pizza lives and you can own a home for two bits.

I think it's different than pure supply v demand, at least not in totality. If only people that needed real estate / housing for personal or company use were helping determine market values, prices would be more predictable. What has happened though is that people get excited about raising the values of real estate, so individuals and groups start making huge investments, buying tons of properties to resale, all manner of techniques designed to increase the values of their investments in the pursuit of profit rather than to simply make practical use of the property by either living there or working there. To some extent this is always true, but the feeding frenzy of say ~1996-2007 was really something beyond the norm. The destruction wrought from this bubble to bust is still reverbrating in the economy, and it's hard for me to justify this kind of speculative price inflation.

 

[RocksteadyDotNet]

I think it's different than pure supply v demand, at least not in totality. If only people that needed real estate / housing for personal or company use were helping determine market values, prices would be more predictable. What has happened though is that people get excited about raising the values of real estate, so individuals and groups start making huge investments, buying tons of properties to resale, all manner of techniques designed to increase the values of their investments in the pursuit of profit rather than to simply make practical use of the property by either living there or working there. To some extent this is always true, but the feeding frenzy of say ~1996-2007 was really something beyond the norm. The destruction wrought from this bubble to bust is still reverbrating in the economy, and it's hard for me to justify this kind of speculative price inflation.

Exactly. If they did the same thing with like, food, and people bought a bunch of it thinking the price would go up, the gov, or someone, would step in and go, no, this is total bullshit, you're fucking up the market and poor people can no longer afford to eat.

 

[IndyColtsFan]

You're absolutely right.

Houses shoudn't be treated like a investment, they're somewhere for people to live.

People NEED houses, but people act like they just another investment class and that it's ok if they prices go though the roof.

If the price of food or petrol went into a bubble people wouldn't be very happy about it would they?

This is 100% correct. I don't feel a bit sorry for people who got caught with their pants down when the bubble burst and they couldn't flip their houses. I'm also a little sick of hearing the "OMG! We're underwater on our mortgage!" complaints and using that as an excuse to bail on your loan. I'm sorry, but a house is first and foremost a residence. What difference does it make if you're underwater if you're not trying to sell it?

 

[OCGuy]

They are still being artificially inflated by the mortgage bailout program (HAARP) and the banks keeping the forclosure supply off of the market. We have not hit bottom.

 

[RocksteadyDotNet]

You want to see a bubble? This is the average prices for a shitty suburb way on the edge of town.

2001 $116,000 5.5%
2002 $135,000 16.4%
2003 $167,000 23.7%
2004 $185,000 10.8%
2005 $220,000 18.9%
2006 $320,000 45.5%
2007 $385,000 20.3%
2008 $375,000 -2.6%
2009 $385,000 2.7%
2010 $402,000 4.4%

$AU

10 years ago the working man could buy a house in Australia. Now even the middle class can barely afford it.

 

[Arkaign]

You want to see a bubble? This is the average prices for a shitty suburb way on the edge of town.

2001 $116,000 5.5%
2002 $135,000 16.4%
2003 $167,000 23.7%
2004 $185,000 10.8%
2005 $220,000 18.9%
2006 $320,000 45.5%
2007 $385,000 20.3%
2008 $375,000 -2.6%
2009 $385,000 2.7%
2010 $402,000 4.4%

$AU

10 years ago the working man could buy a house in Australia. Now even the middle class can barely afford it.

That's terrible. I admit I don't know much about the Australian housing market, I'm guessing there was rampant speculation/overbuying there as well? How are the foreclosure numbers looking with crazy numbers like that?

 

[Patranus]

The only reason the housing market crashed in terms of prices is that demand is artificially low.

By that I mean that there is a very large demand for housing but they no longer access to capital/credit.

Its not the demand for housing that is the issue, it is access to capital/credit.

 

[RocksteadyDotNet]

That's terrible. I admit I don't know much about the Australian housing market, I'm guessing there was rampant speculation/overbuying there as well? How are the foreclosure numbers looking with crazy numbers like that?

Not heaps of foreclosues, yet.

Unemployment only peaked at 5%, and is already going down. Interest rates are on the way up though, and that could cause problems, hopefully.

You need to understand, 90% of the people here don't think there is a bubble, they think these prices are the new paradgrim.

 

[Arkaign]

Not heaps of foreclosues, yet.

Unemployment only peaked at 5%, and is already going down. Interest rates are on the way up though, and that could cause problems, hopefully.

You need to understand, 90% of the people here don't think there is a bubble, they think these prices are the new paradgrim.

lol @ that 🙂

There are always people like that. One of the things my dad taught me early was that the only thing you can count on is change 😛 Hopefully the correction over there is more gradual than over here. There is simply no concieveable excusable reason for prices quadrupling in a decade for something as fundamental as housing.

 

[RocksteadyDotNet]

lol @ that 🙂

There are always people like that. One of the things my dad taught me early was that the only thing you can count on is change 😛 Hopefully the correction over there is more gradual than over here. There is simply no concieveable excusable reason for prices quadrupling in a decade for something as fundamental as housing.

The MSM is all in on it too. All the juro's own investiment properties and don't want the bubble to burst.

This is from this month. House prices have quadrupled in 10 years, and they're saying prices will BOOM this year.

http://www.perthnow.com.au/news/the...battling-aussies/story-e6frg12c-1225992388112

 

[mizzou]

You want to see a bubble? This is the average prices for a shitty suburb way on the edge of town.

2001 $116,000 5.5%
2002 $135,000 16.4%
2003 $167,000 23.7%
2004 $185,000 10.8%
2005 $220,000 18.9%
2006 $320,000 45.5%
2007 $385,000 20.3%
2008 $375,000 -2.6%
2009 $385,000 2.7%
2010 $402,000 4.4%

$AU

10 years ago the working man could buy a house in Australia. Now even the middle class can barely afford it.

come live in America, people with accents have an edge on life here

 

[RocksteadyDotNet]

come live in America, people with accents have an edge on life here

I would definitly like to live there at some point. I might hate on America for a bunch of stuff, but there's no doubt you're a great country, and an exciting place.

But I just love this place too much. Everyday I think how lucky I was to be born here.

We have our problems, but I honestly believe this is the best place in the world to live.

 

[Arkaign]

I would definitly like to live there at some point. I might hate on America for a bunch of stuff, but there's no doubt you're a great country, and an exciting place.

But I just love this place too much. Everyday I think how lucky I was to be born here.

We have our problems, but I honestly believe this is the best place in the world to live.

I've got several Aussie friends, would love to visit someday. My best friend goes on and on about Victoria Bitter, XXXX, Coopers, etc.

 

[RocksteadyDotNet]

I've got several Aussie friends, would love to visit someday. My best friend goes on and on about Victoria Bitter, XXXX, Coopers, etc.

Good beers, we haz it.

Victoria Bitter, or VB as we call it, is all I drink.

 

[dullard]

Plenty of people have said that it is good for housing to become more affordable. But, there are two ways of deflating a bubble: (a) letting it out slowly or (b) letting it out in a massively destructive POP. Yes, prices needed to come down. But they didn't need to come down overnight.

In other words, it would be better for housing to become affordable by people earning more money over a period of a decade or two than by people watching their investment vanish.

If this whole thing took 5-10 years for the prices to come down, then few people would have been adversely affected. But, instead the prices plummeted right before people needed to sell/refinance and thus couldn't sell/refinance. Foreclosure was the only option, and that option hurts everyone.

 

[mcmilljb]

Plenty of people have said that it is good for housing to become more affordable. But, there are two ways of deflating a bubble: (a) letting it out slowly or (b) letting it out in a massively destructive POP. Yes, prices needed to come down. But they didn't need to come down overnight.

If no one wants to buy, then nothing can happen except for prices to fall. Plus banks had to start covering their loses because they made bad loans to make a quick buck for themselves. The market determines how bubbles burst, and no one attempted to do otherwise. The government did pick a few winners, and they should be investigated because GS stole money by using fraud and bribing government officials. You can't tell me Paulson being the former CEO did not have something to do with it.

In other words, it would be better for housing to become affordable by people earning more money over a period of a decade or two than by people watching their investment vanish.

No, that would be more inflation and would hurt people who saved and/or did not leverage more they could afford. Inflation is not good no matter how much the pseudo-economists want to tell you. Inflation destroys capital; it takes away purchasing power.

If this whole thing took 5-10 years for the prices to come down, then few people would have been adversely affected. But, instead the prices plummeted right before people needed to sell/refinance and thus couldn't sell/refinance. Foreclosure was the only option, and that option hurts everyone.

Yeah, but no one wanted to regulate the market. They were selling garbage, and the taxpayers are having to foot the bill. You can't refinance homeowners when you don't have money because your loans went bad. Plus the rating agencies were lying so who knows what they were really worth. Foreclosure is not the horrible options you think, however it is not good when too many people have to do it (or in some cases, choose).

 

[dullard]

Foreclosure is not the horrible options you think, however it is not good when too many people have to do it (or in some cases, choose).

That is exactly my point. A slow and steady price drop with a slow and steady foreclosure rate to fix the problems is ok. What we had wasn't ok. It is just not good when too many people have to do it. And the fact that they'd want to do it by choice highlights the problem even more.

The rest of your post doesn't deserve a reply in this thread.

 

[RocksteadyDotNet]

That is exactly my point. A slow and steady price drop with a slow and steady foreclosure rate to fix the problems is ok. What we had wasn't ok. It is just not good when too many people have to do it. And the fact that they'd want to do it by choice highlights the problem even more.

The rest of your post doesn't deserve a reply in this thread.

People should be burned for making bad investments. Otherwise how else will they learn?

Maybe in future they will actual investiage their investments, rather than just jumping on the bubble bandwagon.

They totally fucked the working man by making home ownership out of his reach, but you want them to be spared any hurt?

Owner occupied shouldn't matter because they done NEED to sell. If you couldn't afford the repayments then you shouldn't have bought it. Otherwise you should take a loss so you think more clearly next time.

 

[ShawnD1]

I'm also a little sick of hearing the "OMG! We're underwater on our mortgage!" complaints and using that as an excuse to bail on your loan. I'm sorry, but a house is first and foremost a residence. What difference does it make if you're underwater if you're not trying to sell it?

It's annoying because it's often the result of people getting something they KNOW they cannot afford. You're supposed to buy a house you can afford. If you took out a 30 year mortgage and the payments were just barely within your reach when interest rates were low, then I'm sorry but you made a very bad choice and now it's time to pay the price. It's harsh but that's how things work. It's not a god given right to own a 3000 square foot house when you are 25. Start within your means.

The people I feel sorry for are the ones who really did act responsibly but they lose everything due to unemployment, then they can't get a job that pays even close to what they were making, so they're sunk.

 

[mcmilljb]

That is exactly my point. A slow and steady price drop with a slow and steady foreclosure rate to fix the problems is ok. What we had wasn't ok. It is just not good when too many people have to do it. And the fact that they'd want to do it by choice highlights the problem even more.

The rest of your post doesn't deserve a reply in this thread.

They would have to choose winners and losers to do a slow and "steady" release of bad mortgages for foreclosure. What you want was not possible.

 

[dullard]

They would have to choose winners and losers to do a slow and "steady" release of bad mortgages for foreclosure. What you want was not possible.

You keep talking about what was possible for this one particular set of circumstances. I'm talking about ideals regarding bubbles. I'm just trying to stay on topic with the OP's statement "maybe it's good in some ways that housing prices have fallen". Yes, it can be good for them to fall, but I specified the way that it can fall with a good result. Specific details will vary dramatically with what bubble we talk about.

 

[UglyCasanova]

I think any kind of market correction can be viewed as a good thing; the price of whatever good was inflated/deflated starts to approach equilibrium and the gears of supply and demand start to work on intrinsic value rather than speculation and delusions. The problem, like dullard said, was the scale of the correction and the short time frame that it happened in.

Not only did we see the fiscal irresponsibility on the part of the average American home buyer come to light, but the utter stupidity of the mortgage industry as a whole. I work in said industry and the things I see would make your head spin. Lending standards have tightened, but there is still an incredible amount of risk being taken. Part of the fault is on the lenders, but some of it falls on the government (i.e. you can't deny a 30yr mortgage to a 98 year old woman based on her age). There is still plenty of insanity out there.

The economy will recover and the housing market is starting to stabilize (let's hope the commercial real estate market begins to improve as well). It sucks that so many people are being foreclosed upon, but likewise they shouldn't have over extended themselves with houses they can't afford.