Why do we assume that rising home prices are good? (economy, financial)

[middle-aged mom]

Originally Posted by dreamofmonterey

Most realtors are clueless.

Are they? I don't know most realtors. How many of the 1 million + have you known?

[dreamofmonterey]

O/T.

many

and on east tenn forum, a depressed economy you will see MANY hawking a great market right now.
Far from it. Caveat emptor.

[KUchief25]

Originally Posted by zombocom

Because it is an investment, so it is good for people who own a house. It isn't good for people who don't own a house.

I never looked at my home as an investment myself. I figure I'll just die here. Now the flippers love it and it makes the banks books look good.

[MTAtech]

A large percent of employment is involved n house construction and low home prices suppress employment. Moreover, it restricts home sales because if a seller can't payoff the mortgage they can't move.

[Taratova]

Lower housing prices make it more affordable to buy and yet it also hinders sellers who want to get more equity out of their home when they sell it.

If one bought a house during the bubble they will suffer more than those who bought when the prices were not at the highest peak.

One must also take into account what the taxable appraisal value of a home.During the peak when appraisal value was high the taxes went up higher.

Interest rates will climb in a year or so making a mortgage payment higher with each percentage point of interest . It is now around 4-5 percent and will gradually go higher making first time buyers having a higher mortgage payment as it creeps up .

In 1977 interest rates were @8-9 %.. 1980's then went to 18 % for the banks had huge losses as bad loans from Brazil were not paid and the American people had to make up for the banks losses. Car loans went to 18 % , home loans went to 18%.

Today 4% is a bargain.

[Calix]

Originally Posted by Taratova

Interest rates will climb in a year or so making a mortgage payment higher with each percentage point of interest . It is now around 4-5 percent and will gradually go higher making first time buyers having a higher mortgage payment as it creeps up .


Today 4% is a bargain.

Exactly, and rates have been falling which has allowed prices to rise even though the monthly payment has remained the same. Earlier this year, they were available as low as 3.125%

Interest rates make a huge difference because people buy a monthly payment, not the price of the home. Let me illustrate, especially in terms of "affordability" and "qualifications". Taking the lowest rates available this year, lets look at a hypothetical purchase. Person makes 100K, can afford a $2500/mo payment.


Person is looking to purchase a home for 583K

Annual Income $100,000
Monthly Payment Budget $2,500
Term 30

Interest Rate / Term (yrs) Purchase Budget Loss on 10bps increase Cumulative loss (%)
3.125% $583,600.20
3.225% $576,255.41 -1.26% -1.3%
3.325% $569,044.18 -1.25% -2.5%
3.425% $561,963.70 -1.24% -3.7%
3.525% $555,011.18 -1.24% -4.9%
3.625% $548,183.94 -1.23% -6.1%
3.725% $541,479.33 -1.22% -7.2%
3.825% $534,894.77 -1.22% -8.3%
3.925% $528,427.73 -1.21% -9.5%
4.025% $522,075.76 -1.20% -10.5%
4.125% $515,836.46 -1.20% -11.6%
4.225% $509,707.45 -1.19% -12.7%
4.325% $503,686.46 -1.18% -13.7%
4.425% $497,771.23 -1.17% -14.7%
4.525% $491,959.57 -1.17% -15.7%
4.625% $486,249.34 -1.16% -16.7%
4.725% $480,638.43 -1.15% -17.6%
4.825% $475,124.81 -1.15% -18.6%
4.925% $469,706.46 -1.14% -19.5%
5.025% $464,381.43 -1.13% -20.4%
5.125% $459,147.81 -1.13% -21.3%
5.225% $454,003.73 -1.12% -22.2%
5.325% $448,947.35 -1.11% -23.1%
5.425% $443,976.91 -1.11% -23.9%
5.525% $439,090.64 -1.10% -24.8%
5.625% $434,286.84 -1.09% -25.6%
5.725% $429,563.84 -1.09% -26.4%
5.825% $424,920.01 -1.08% -27.2%
5.925% $420,353.76 -1.07% -28.0%
6.025% $415,863.52 -1.07% -28.7%
6.125% $411,447.77 -1.06% -29.5%
6.225% $407,105.01 -1.06% -30.2%
6.325% $402,833.80 -1.05% -31.0%

At each of these rates, that is just to keep the payment the same, $2500.Just an increase of 1% would push this person beyond the brink. And yet, people think that prices will continue to rise in the face of rising interest rates and even if they did, it will suck more money out of the economy to service ever more burdensome levels of debt. How is this good for the economy as a whole, especially in a consumer driven economy where there is now less money for other consumables?

[texdav]

for the same reason people think its good when home price drop;I guess. It actually stops sales and stops investment in homes ;if one thinks that good. Perhaps the same thing low sales causing job losses are good to them.

[Calix]

Originally Posted by texdav

for the same reason people think its good when home price drop;I guess. It actually stops sales and stops investment in homes ;if one thinks that good. Perhaps the same thing low sales causing job losses are good to them.

Interesting, more proof the of the brainwashing regarding housing

comparison.

The price of computers drop every year and there is more and more investment all the time. You get an ever superior product at an ever lower price. No one bemoans that and the tech industry does just fine.

It forces efficiencies and improvements, which is why you get a better and better product at the same price.

Real estate is one of the most inefficient markets in the world today, rife with arbitrage, graft, skimming, and gross malinvestment.

The consumer and the greater economy are not benefitted by pure inflationary spikes in any good, and housing is a good.

People keep selling the lie that increasing home prices are a good thing, they are not. Whatever figure you may have stored in your head about the “value” of your house, a house is worth only what someone will pay for it. That number has two components: One is the value of occupancy — that is, the privilege of living in the house, mowing the lawn, calling the plumber and so on. This should roughly equal what the house would rent for. The other component is the investment value — how much you think the price of the house will have gone up when you sell it.

Any investment value greater than zero (or zero plus inflation) is suspect, because it depends on the greater fool theory. There is no physical reason why a house should become more valuable at all. It is not growing like a crop. It is not producing anything that you can turn around and sell, like a factory. It just sits there. It becomes more valuable because people believe that it will become more valuable. Worse, because the general assumption that it will become more valuable is already reflected in the price you paid, you need a buyer who believes that it will become more valuable even faster than the general consensus. Hence, the cycle goes on and on until the scheme collapses.

[middle-aged mom]

Originally Posted by Taratova

One must also take into account what the taxable appraisal value of a home.During the peak when appraisal value was high the taxes went up higher.

Many ( maybe most) municipalities went on a building/spending spree over the past 10-15 +/- years.This spending was financed by bonds. Spending created and sustained jobs in construction and the trades, while it lasted.

Property taxes in most municipalities pay for schools, police, fire, first responders, infrastructure and debt servicing. The costs are relatively fixed, regardless of home values. When appraised values increase, the multiplier decreases. When property assessments decline, the multiplier increases. ( Terminology varies all over the U.S.)

[middle-aged mom]

Originally Posted by Calix

There is no physical reason why a house should become more valuable at all. It is not growing like a crop. It is not producing anything that you can turn around and sell, like a factory. It just sits there. It becomes more valuable because people believe that it will become more valuable.

The value of land changes over time.
The cost to replace the home increases, over time.