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That whole editorial is precisely doomsaying, warning that our whole nation could become like the 9th ward of New Orleans after Katrina. A massive depression leaving America as a 3rd world nation. As I have been saying from the start, that is precisely what would happen if property values fall an additional 50%.
That whole editorial is precisely doomsaying, warning that our whole nation could become like the 9th ward of New Orleans after Katrina. A massive depression leaving America as a 3rd world nation. As I have been saying from the start, that is precisely what would happen if property values fall an additional 50%.
This NOT doomsaying: we are saying that this country is going through a recession and there will be a correction on housing prices. In fact we need the correction so that houses get cheaper and people can feel free to spend and invest.
Doomsaying is to say that that we will become New Orleans after Katrina and a 3rd world country. This is not necessary. Can you argue why and in what sense we will become a 3rd world country?
Last edited by halfoffpeak; 02-22-2009 at 05:43 PM..
I suggest you read the editorial you cited. That's the source for the comparison to Katrina.
If real estate values were to fall an additional 50%, tens of millions of Americans would be bankrupt (that is what happens when you carry a 500k loan on a property worth only 300k). Every bank in America would be bankrupt. (banks acultually have very little cash. Instead they have collateralized debt obligations. If the value of the collateral drops below the amount of loaned out, then the bank is entirely bankrupt). With the majority of Americans bankrupt, with absolutely no banking system in existence, our entire economy would be frozen. Obviously, with such reductions in property assessments and widespread bankruptcy, tax revenues to states and localities would be destroyed, requiring local governments to shut their schools, close their fire stations, dismiss their police departments.
Very simple math--- for most Americans, their networth is tied closely to their homes. So if you take the median American family, and change their networth from 200k to negative 100k -- that doesn't create money for investment. Instead, it destroys the entire nation. This current recession is being caused by the current 20% price drop --- so just imagine what dropping another 50% would do.
Very simple math--- for most Americans, their networth is tied closely to their homes. So if you take the median American family, and change their networth from 200k to negative 100k -- that doesn't create money for investment. Instead, it destroys the entire nation. This current recession is being caused by the current 20% price drop --- so just imagine what dropping another 50% would do.
I am not sure why you insist. Prices were 50% off in 2000 and the economy was strong. People who would be underwater will be those who bought since. Not all, because those who already owned a house, that sold to buy another, took advantage of the appreciation.
No need for doom & gloom. Depreciation is only fair and necessary for the economy to work again. There was a bubble and house valuations should return to fair levels. It is NECESSARY.
The majority of Americans have bought since 2000. The vast majority have bought or taken out equity since then. Secondly, a 50% decline, adjusting for inflation, would actually bring us back to prices not seen since the 1970's.
And fnally, there was NOT a 50% decline in 2000. Prices were UP over the year before.
Our entire economic system is built on wealth creation, a mildly inflationary system of value increases. A small drop in wealth values is a recession, by definition. A massive drop, leaving the vast majority of Americans underwater and bankrupt, leaving every American financial institution bankrupt, would almost every town government and school system bankrupt, would be the worst depression that can ever be imagined.
By the way, homes are returning to "fair values," there is a very painful correction occurring. But fair values would not be a further 50% reduction. Westchester, especially many individual Westchester towns, have much greater affluence than the national averages, and therefore can afford higher home values. Many Westchester towns have median family incomes over 200k, and mean family incomes over 300k. Further, you constantly ignore inflation. Wages have increased in the last 10 years, building costs have increased.. Therefore the "fair" home prices have also inceased over the last 10 years.
By the way, homes are returning to "fair values," there is a very painful correction occurring. But fair values would not be a further 50% reduction. Westchester, especially many individual Westchester towns, have much greater affluence than the national averages, and therefore can afford higher home values. Many Westchester towns have median family incomes over 200k, and mean family incomes over 300k. Further, you constantly ignore inflation. Wages have increased in the last 10 years, building costs have increased.. Therefore the "fair" home prices have also inceased over the last 10 years.
The high incomes you mentioned are a thing of the past. If you haven't noticed already Wall street is dead. Not only there were thousands of layoffs but their income is decreasing. In addition, people have to save more because of the 401K downturn so less is available for mortgage. The financial sector is shrinking. This will have a dramatic effect on westchester prices-as well as manhattan prices.
Building costs have actually decreased because of wages and oil low price. Builders have no jobs and there is a huge inventory.
As for inflation the graphs I posted are inflation adjusted.
One should expect a 50% cut from the peak and this is an optimistic calculation.
Hi all, we are looking at properties in Westchester and I found this helpful as well. I must say, we might rent for a while as I think the predictions that housing prices in Westchester will drop significantly in the next two years are correct. With Obama's new proposal to raise taxes on the "rich" (those making over 250K) AND eliminating their ability to deduct property taxes on their fed taxes, etc...will definitely hurt the market in this "high property tax" area.
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