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View Diary: They Are the 1% - A Really Scary Follow Up (95 comments)

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  •  Housing prices - "scary stuff" (5+ / 0-)

    Those of us who don't own homes, who are, if I remeber the figures correctly, a majority, celebrate that housing prices are falling. Those in trouble with their mortgages are hurt, obviously, and I in no way mean to suggest that theirs is not a big problem, but it should not be fogotten that they are on average comparatively more wealthy than those of us who cannot even (sanely) contemplate buying a home.

    It's not at all obvious to me why falling prices, particularly for things like housing, are necessarily bad for the economy. While they are clearly bad for construction firms and banks (mortgages), one of the lessons of the present situation should be that the interests of the great majority of us are not at all the same as the interests of big firms and banks - what's good for them has turned out to be bad for us (some saw this clearly a long time ago, but got shouted down for being communists) and what's good for us may not be so good for them, although I suspect that at least the banks will manage to keep making money.

    I know, vis-a-vis housing, that housing construction means jobs, but perhaps those sorts of jobs are not those on which an economy should be based (this sure seems to be the case in Spain and Portugal).

    •  Actually . . . (5+ / 0-)

      . . . I mostly agree with this.  I've been arguing for a long time whenever I hear a news report about falling house prices being "disappointing" that this isn't really an appropriate way to look at it; falling home prices mean more people who might be looking to buy a home now have access to one.  As with any asset, the movement in price is only good if it more accurately reflects underlying economic factors like sustainable demand, available supply, etc.

      The reason, though, sustained decrease in housing prices matters in the long run mostly is because a decrease in home prices works a drastic reduction in the nation's wealth; people tend to spend more and have more economic demand if they think they are wealthy.  One of the big reasons demand fell off the face of the planet after the housing market began crashing is because suddenly the people who thought they had a tidy investment saved up realized that they didn't - falling house prices took away a significant section of their net worth.

      A decrease in aggregate national assets also decreases available collateral to support loans.  We already have a debt overhang in the private sector, but we can't overlook the fact that a decrease in loans works a direct decrease in the money supply, which also has a recessionary effect.

      All of this has kind of a snowball effect that conspires to dampen economic growth.  I suppose that falling house prices don't necessarily mean bad things for the economy, but only if we can count on the Fed and the gov't to engage in expansionary monetary and fiscal policy.

      Unfortunately, nothing we've seen from either the Fed or the gov't gives me any reason to believe they'd be capable of doing something like that.

      Politics is the neverending story we tell ourselves about who we are as a people.

      by swellsman on Mon Oct 10, 2011 at 07:15:45 AM PDT

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    •  Agreed. I hope house prices do NOT rebound. (1+ / 0-)
      Recommended by:
      Odysseus

      And I say that as a home owner. The bottom line is that houses were too expensive and over-valued; that's why it's called a "bubble."  One cannot curse the housing bubble and then hope for its return all in the same breath. People need to accept that a house is a home, not an investment mechanism.

      Gentlemen, you can't fight in here! This is the War Room!

      by bigtimecynic on Mon Oct 10, 2011 at 11:52:39 AM PDT

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