Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So why is it considered a catastrophe when housing prices drop?
Very good question.
Dollars are like blood cells in the body. New ones are constantly being created, and old ones are constantly being destroyed. The rate of creation-to-destruction is what drives overall price levels up or down.
In our economy, for reasons I don't fully understand, we've allowed mortgages to be the money-creation mechanism for the entire economy. (The other, smaller component is the national debt.) When you borrow for a mortgage, you're borrowing money from the banks, which THEY borrowed from the Fed, and you're doing so within a heavily-regulated system where government-sponsored entities Fannie Mae and Freddie Mac guarantee the loans.
So what happens is, if households are forming and people are taking out new mortgage debt, then prices rise across the economy. State/Local governments bring in more revenue, stock prices rise -- basically asset prices in general begin to rise, which institutions LOVE. Rising home prices is merely a side effect of this larger economic process of borrowing.
Problem is, if you're not an institution or a homeowner, if you are a wage-earner without any assets, this system works against you by bidding up asset prices faster than you can save your money to buy them.
Quote:
We have been systematically taught that housing is a good investment and that prices must go up.
Older generations have been systematically taught, mainly by the government, that housing prices must go up. This is not a historically-sound view; it is simply a reflection of our inflationary monetary policies from ~1970 to the present.
I can't read/respond the full length of your post, but I've explained the situation as best I understand it.
Who benefits? Homeowners, realtors, investors, local governments / community (schools etc), homebuilders, people employed in home construction, home remodel businesses, businesses selling garden equipment and everyone employed by all of the above, and you are telling me this is a bad thing???
Yes, rising values are a bad thing for home owners who don't plan to sell their homes to make a profit! For many of us we live in our homes and plan to be in them long term. We don't want to use our home as an ATM, we didn't buy it to try to flip it in 5 years for profit, it is where we LIVE. And to have values go up a lot is bad because it means our property taxes will skyrocket- making a once affordable monthly budget suddenly unaffordable. How is that a good thing?
Yes, rising values are a bad thing for home owners who don't plan to sell their homes to make a profit! For many of us we live in our homes and plan to be in them long term. We don't want to use our home as an ATM, we didn't buy it to try to flip it in 5 years for profit, it is where we LIVE. And to have values go up a lot is bad because it means our property taxes will skyrocket- making a once affordable monthly budget suddenly unaffordable. How is that a good thing?
Where do you live, and how much has your taxes skyrocketed in the past few years? The truth is that property taxes cannot skyrocket because there is a cap on how much it can go up in a year. My property taxes are much lower today than they were five years ago.
Where do you live, and how much has your taxes skyrocketed in the past few years? The truth is that property taxes cannot skyrocket because there is a cap on how much it can go up in a year. My property taxes are much lower today than they were five years ago.
It's good for the owner but certainly not good for the buyer.
It only matters for owners who own multiple properties and intend to sell some later. For owners only owning one home as a primary residence, it is a wash because if they sell and buy another home, the other home is gonna cost more or less depending on rising prices or falling or flat prices.
The whole notion that prices were depressed in 2009-2012 and even 2013 is B.S. They were outrageously overvalued before. And even more so today.
The best thing for both worlds is flat prices. That way savers who want to live frugal can save to pay cash for a house and the ones who only care about the stupid monthly payment, its a wash as higher interest rates make payment same on lower home prices. Gives people a choice. Flat prices at 2010-2012 levels with 2-3% rise per year would have been best thew past 8 years. Prices crashing in 2008-2009 was good because they were so badly overvalued before. And them crashing today would be good because they are badly overvalued and unaffordable now. If home prices were well below 2010-2012 levels such as a nice starter home in a good neighborhood of a major metro was $70K instead of $125K, them them rising fast would be good as then they would have been undervalued kind of like oil was at $10 to $30 a barrel.
Prices falling more from 2010-2012 levels would have been bad because prices were where they should be then. Same with them rising too much as they unfortunately have after that time.
Or does new construction really have to cost so much that there just are not enough homes at more reasonable prices for increasing population?
I know land costs have something to do with it, but land would be much lower priced if interest rates were normal instead of the government trying to prop up real estate prices the past 8 years with stupid low rates to the detriment of future generations and today and even buyers of 2017 to present.
Lets say land was reasonable priced in a major metro where a 6000 to 7000 square foot lot cost only $10K?
Would it be possible for new construction including labor to make solid quality homes of 3 bedrooms and 1 to 2 baths of 1000-1400 square feet for $130K to $170K including the cost of land so final sale price of such new construction is that price? And that's including material costs and construction workers making an adequate salary and builders making a reasonable profit? Would that be possible or no with todays material costs and labor? If not then maybe its just an unfortunate reality that home prices are super expensive and had to rise since then and unfortunately stay that way?
There is a cap in some areas on how much property taxes can rise. It depends on which state you live in.
In Michigan we have proposal A passed in 1994 which limits increases to inflation or 5% whichever is less as long as you live in the home. When home is sold it resets/uncaps to market value the following year. There is no cap in rate of taxation as it varies from cities and counties although Prop A does put some limits on millage increases in ways that I do not really know or understand
In California there is Proposition 13 passed in 1978 which limits property taxes to 1% of market value of home at time of purchase and no more than 2% increases per year as long you stay in home. If home is sold, it resets/uncaps to market value at time. Do not no more as I have never even lived or even visited California just read about it.
Other states have similar things I am sure like Nevada and Arizona, Indiana, Florida, and such. Although Arizona and Nevada have such a low rate that taxes are not bad even without such a cap. Californioa has a low rate, but for todays buyers even if they have the funds, prices in most areas of California are so friggin high that taxes happen to be very high as 1% of a $600K small little 1000 square foot home is still $6K per year.
States like New Jersey and New York not only have high rates, they really have no cap except New Jersey implemented one for state level to 2% recently I believe and a freeze for people over 65, but tacxes there are so badly high starting at $8K per year foir a small little home and even as high as $14K per year for a small little home that it almost does not make a difference. And the 2% cap is at state level which is not most taxes in NJ, the towns can increase as much as they want really.
1. Realtors
2. Investors looking to unload investment properties - meaning not their primary residence
3. Homeowners looking to use their home as an ATM - we all know how that turns out
4. Local governments who tax you based on value of your home
You have to be very careful here. Home ownership is very important for the health of most local communities. It is a large part of any local economy. It gives the community more permanence and relevance. More commerce and of course more tax dollars.
Of course in some areas home ownership is simply too expensive. I do believe that is more of a lifestyle driver than many imagine at first glance. In many urban locales it is of course no easy feat in creating enough cheap local housing for lower level workers.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
