When Mainstream Media Say "Flip This House," Don't.

With Julian Assange in the slammer, it's left to Dan Froomkin to find out the really big scoops:

You might not know it from reading the news, but the nation’s housing prices are in free fall again...

But if there is coverage in the traditional media, most of it  is relegated to the business section — when this should be front page news, for every newspaper in America.

It’s a big national story, and it’s a huge local story, particularly in those 13 major cities where prices are officially in double-dip territory — with home prices that had gone back up now down again,  to their lowest levels since the downturn began. (Those cities are Charlotte, NC; Jacksonville, FL; Las Vegas, NV; Miami, FL; Nashville, TN.; Orlando, FL; Philadelphia, PA.; Portland, OR; Richmond, VA; Seattle, WA; Tampa, FL; Tucson, AZ; and Virginia Beach, VA.)

Dean Baker, co-director of the liberal Center for Economic and Policy Research, tells me the story isn’t getting nearly as much coverage as it should — if nothing else because “as you see a drop in home equity, you also see a drop in consumption.”

This is due to what Baker and other economists call the “wealth effect.”

This is like Ben Bernanke's decision last week to grace 60 Minutes with his mug in an emergency effort to explain that the economy is in trouble. Even in a nation of numbskulls like this one, is there anybody out there who doesn't know real estate is still losing value? Zillow will pretty much tell the tale, unless you live in some U.S.-in-name-only place like Palm Beach or Iowa. Even the stateless peoples of New Amsterdam are hip to the continuing slide in real estate prices.

Froomkin, to his credit, doesn't offer any prescriptions. (But I will: The government should form an agency called For Lease and take over all properties with For Lease signs -- and in needier areas, all the empty residential properties -- to remove excess supply. It should use an infinite supply of money to do that.) I suspect the story has fallen into the B and C sections because a) it is old news and b) the story hasn't changed.

It's also probably a good sign that the decline-of-real-estate story has lost some of its luster. It shows that Americans are slowly waking from the delusion of the wealth effect Froomkin alludes to. It was never wise to factor your real estate wealth into incidental spending decisions. If you look closely at most sad foreclosure stories, you find two broad groups: people who bought at the top of the market and have seen prices drop below the outstanding mortgage balance; and people who bought long before the top and would now either own the property outright or be well above water had they not used their homes as ATMs.

With mortgage delinquency rates still above five percent, that's a lot of people suffering. But the lesson learned -- the academic version of the slacker's insight that you can live in a car but you can't drive a house -- is valuable.  To be land rich and cash poor is to try and live like a royal family on the skids, and the U.S. Constitution doesn't allow titles of nobility.

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  • ||

    This is all the fault of evil mortgage servicers who won't just write off the debt and give free homes to the deserving people who were duped by predatory lenders.

  • Old Mexican||

    I'm just waiting for the moment when hyperinflation strikes, and land values fall like a rock, so that I can buy some prime real estate from a foolish American that placed himself in dire straits for believing the Keynesians, for a few silver coins I've been saving for such an occasion.

    My lifelong dream of being a heavily armed rancher giving jobs for food to gringos is just this closer of becoming reality. Thank you, Greenspan!!

  • CatoTheElder||

    "hyperinflation strikes, and land values fall like a rock"?

    I suppose you mean land values measured in Krugerrands/acre, 'cause with hyperinflation land values in $/acre will increase.

  • Old Mexican||

    Re: CatoTheElder,

    I suppose you mean land values measured in Krugerrands/acre, 'cause with hyperinflation land values in $/acre will increase.

    Nope - real estate may actually go down in price as people try to dispose of the less liquid assets for more liquid assets or at least to buy FOOD and CLOTHES. I will be well stocked of both, plus my G/S purse (gold and silver).

  • CatoTheElder||

    Oh, and good luck getting any real work out of the slacker gringos.

  • FleeingCali||

    Throw in some beer and smoke, and I might take you up on that offer...

  • ||

    Housing prices haven't hit bottom yet.

    A strong economic recovery will not happen until they do.

    The government will continue attempting to arrest the slide, delaying a recovery.

    Yeah, it's stupid policy but when has that ever dissuaded the federal government?

  • ||

    Anyone who allows the slide to happen is going to get pummeled in the next election, and the blowhard who pummels them is going to get credited for the recovery.

    An ignorant people gets the government they deserve. Unfortunately those of us who aren't ignorant get the same government. (if this makes me an elitist, so be it)

  • Paul||

    Anyone who allows the slide to happen is going to get pummeled in the next election, and the blowhard who pummels them is going to get credited for the recovery.

    Anything that creates turnover in Washington, I'm all for it.

  • Fist of Etiquette||

    You know who else used to forget to sign their blog posts?

  • Wind Rider||

    Iheard it was something Kruschev used to do, on those rare occasions he was sober.

  • Church Lady||

    Could it be.... oh, I don't know....

    SATAN??

  • ||

    Since this is the Internet, my guess would be "Hitler", but my Trivial Pursuit training says to go with "Babe Ruth" or "Joe Lewis".

  • ||

    Tim Cavanaugh?

  • ||

    Tim Cavanaugh?

    DING DING DING!!

    We have a winner!!!

  • Fist of Etiquette||

    Also acceptable: Ted Kaczynksi. And like Cavanuagh, readers could easily spot Kaczynski's style from several feet away.

  • Jeffersonian||

    The government should form an agency called For Lease and take over all properties with For Lease signs -- and in needier areas, all the empty residential properties -- to remove excess supply. It should use an infinite supply of money to do that.)

    What pantywaist is recommending that? Why not pass a federal statute ordering Americans to purchase real estate?

  • Nancy Pelosi||

    Are you serious? Are you serious?

  • Jeffersonian||

    I shouldn't have to convince you, of all people, Nancy.

  • Clancy||

    But what if I don't have enough money left over after buying my Federally mandated health insurance?

  • CatoTheElder||

    Brilliant idea! While we're at it, mandate that Americans who have any money purchase real estate AND allow it to be occupied rent-free by some random person who can't afford it.

  • robc||

    Anyone who fails to buy real estate is participating in interstate housing commerce and can be forced to buy it.

  • Barack Obama||

    I just love mandates.

  • Fluffy||

    Prices would already be recovering if the housing crash [and the banking crash] had just been allowed to take its course.

    So now we have had Keynesian methods applied as palliatives to three distinct severe economic contractions: the 1929 Depression, Japan's asset price collapse, and the current Great Recession.

    How's that record looking?

    Have Keynesian solutions resulted in shorter, or longer, contractions than the ones we experiences BK (Before Keynes)?

  • Wind Rider||

    How dare you clutter the issue with facts, you bastard!

  • Mr Whipple||

    Do you study economic history with cliometrics, or praxeology?

  • Fluffy||

    Explain the data points in question, then.

  • Mr. Mistoffelees||

    Keynes wasn't even in office yet in 1929, you idiot. Herbert Hoover had 3 years to fix the economy with your lazy-fairies snake oil and it didn't work.

  • Fluffy||

    Hoover refused to allow liquidation and attempted limited Keynesian palliatives [among other interventions], also.

    The fact remains: every 19th century non-Keynes contraction rebounded faster, and more sharply, than the three main post-Keynes contractions we have as examples.

    Even if I lopped off 1929-1932 - which I won't - the New Deal "recovery" was just as anemic as Japan's recovery and our current recovery, when compared to previous economic cycles. Why?

    I would argue that it's because in the pre-Keynes era, you had sharp and sudden deflations that completely wiped out most leveraged system participants and transferred their assets (at lower price entry points) to new holders with healthier balance sheets.

    If the banking system "meltdown" we were told to fear in 2008 had come, the existing set of lenders would be gone, and their assets would be in the hands of people who acquired them for 10 cents on the dollar. That set of lenders would not be drawing out the foreclosure crisis year by painful year. That set of lenders would be modifying loans wholesale to make distressed assets productive again, and would have cleared their book of REO at whatever price the market would bear long ago.

  • Fluffy||

    Hoover created the Reconstruction Finance Corporation, the basic purpose of which was to prevent overleveraged banks from failing.

    In other words, it was the first version of TARP.

  • Paul||

    So now we have had Keynesian methods applied as palliatives to three distinct severe economic contractions: the 1929 Depression, Japan's asset price collapse, and the current Great Recession.

    You forgot one, the Dutch Tulip Bubble of 1624!11!one!!!

  • Old Mexican||

    It was never wise to factor your real estate wealth into incidental spending decisions. If you look closely at most sad foreclosure stories, you find two broad groups: people who bought at the top of the market and have seen prices drop below the outstanding mortgage balance; and people who bought long before the top and would now either own the property outright or be well above water had they not used their homes as ATMs.

    Houses are not investment, they are food for termites.

    LAND itself is not an investment, unless you plan to put something on it that makes money - like a factory, or cows. Period.

  • Trespassers W||

    LAND itself is not an investment, unless you plan to put something on it that makes money - like a factory, or cows. Period.

    GOLD itself is not an investment, unless you plan to turn it into decorative art and sell it. Period.

    What?

  • Old Mexican||

    Re: Trespassers W,

    GOLD itself is not an investment

    Gold is NOT an investment. Gold is MONEY, one does not invest in money, one invests in productive efforts. One HOLDS gold as one holds a stock of money - as SAVINGS, but not as INVESTMENT. Only fools consider gold as investment, as only fools consider the purchase of houses, or land, investments.

  • Trespassers W||

    You may personally think gold or land to be BAD investments. That doesn't make them NOT investments.

    By your definition, neither bonds, nor equities, nor currencies could be investments--only capital goods that you personally intend to use for production. Fine, but that's not what anyone else in the world means by "investment".

    To take one example,

    "Investment is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument..."

  • Old Mexican||

    Re: Trespasser W,

    You may personally think gold or land to be BAD investments. That doesn't make them NOT investments.

    No, I don't think they are bad or good investments - buying gold or land to trade is called 'speculation' or simply 'trading.' It is taking avantage of arbitrage, not investment per se.

    By your definition, neither bonds, nor equities, nor currencies could be investments--only capital goods that you personally intend to use for production.

    Let me tell you that the ONLY reason people say that trading bonds, equities or currency is "investing" is because they don't like to be called "speculators," even though that is what they are doing - speculating.

    To take one example,

    "Investment is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument..."

    Fine, but there's a big difference in expecting a profit from a productive effort like a business or enterprise or renting and quite another to expect a future profit from arbitrage. One invests in stocks if you trust the company is doing something you trust, like or want. However, trading commodities or bonds or yes, even stocks, taking advantage of arbitrage, is SPECULATING, not INVESTING.

    (By the way, there's NOTHING wrong with speculating, it actually serves a very important purpose in the market, which is to stabilize prices.)

    The same with gold and real estate - GOLD is MONEY, one holds gold as one holds cash. The arbitrage opportunity with gold does not ipso facto make gold an INVESTMENT. Same with real estate, bonds, equities, commodities, etc.

  • Mr Whipple||

    You are talking about the difference between value or venture investing, and speculative investing.

  • Trespassers W||

    One invests in stocks if you trust the company is doing something you trust, like or want.

    Actually, by your definition, you can only "invest" in equities if you're in on the IPO. Nothing to do with what you happen to think about the company. If you trust the company and so you buy its shares in the secondary market, that qualifies as speculation on your account.

  • Old Mexican||

    Re: Tresspassers W,

    If you trust the company and so you buy its shares in the secondary market, that qualifies as speculation on your account.

    Nah. If I invest on Apple because of their knockout products and good valuation and fundamentals, that's investing. If on the other hand I buy a basket of stocks thinking that the market "cannot go anywhere but up," that's speculating (stupidly.)

  • Clancy||

    "Gold is MONEY, one does not invest in money"

    Tell that to currency traders.

  • ||

    "Gold is MONEY, one does not invest in money"

    Tell that to currency traders.

    Currency traders speculate, they do not invest. There is a difference, although the distinction gets fuzzy at the border.

  • Old Mexican||

    Re: Clancy,

    Tell that to currency traders.

    Trading is not investing. Trading is trading. Investing means putting capital into a productive effort to increase the stock of capital.

  • ||

    I thought time was money.

  • Trespassers W||

    Only fools consider gold as investment, as only fools consider the purchase of houses, or land, investments.

    This is no-true-Scotsman territory. That may be true, but you don't get to use hindsight to define "investment".

    LAND itself is not an investment, unless you plan to put something on it that makes money - like a factory, or cows. Period.

    After all, your factory might fail, or the price of beef might plummet. I could say "well, you should have known that, only fools invest in land to put a factory on it or raise cows". All that means is that it turned out to be a bad investment--not that it wasn't a ("true") investment.

  • Old Mexican||

    Re: Trespassers W,

    After all, your factory might fail, or the price of beef might plummet.

    I am not arguing on the virtue of gold or land or factories as investments, I am arguing that buying gold, or land, is NOT an investment - it is simply buying gold or land. Investing is putting your capital on a productive effort with the expectation to turn a profit - whether the expectation turned out to be too optimistic does not make the action any less an investment than putting money on General Electric.

    If you bought land because you are going to place an apartment complex on top of it, that would be an investment. If you bought the land expecting to sell it later at a higher price, that's speculating - nothing was actually produced.

    Again, there's absolutely nothing wrong with speculating, it serves an extremely important market function. Only statist fucks think speculating is bad, but it is certainly not investing.

  • Trespassers W||

    If I buy land with the expectation that somebody (perhaps me) will put it into productive use right now, that's investing? But if I buy land with the expectation that somebody else will put it into productive use later, that's not investing?

    If I buy land right now and use it as a means of production myself, that's investing? If I buy land right now and lease it to someone else for production (or not--I don't really care), that's (maybe) investing? But if I buy land and sell it to someone else right now, that's not investing? Similarly, if I buy land right now and sell it to someone else later, that's not investing?

    It seems a totally arbitrary distinction to me, and I think common usage of the word backs me up on this.

  • Old Mexican||

    Re: Tresspassers W,

    If I buy land with the expectation that somebody (perhaps me) will put it into productive use right now, that's investing?

    No. Buying land as part of a business plan to produce things, THAT's investing.

    But if I buy land with the expectation that somebody else will put it into productive use later, that's not investing?

    No, that's guessing.

    Otherwise, placing my money on 16 black in the Bellagio would be construed as "investing," wouldn't it?

    If I buy land right now and use it as a means of production myself, that's investing?

    Yes.

    If I buy land right now and lease it to someone else for production (or not--I don't really care), that's (maybe) investing?

    Yes, if you expect the return to be higher than the initial capital; otherwise it would be a case of being a sucker.

    But if I buy land and sell it to someone else right now, that's not investing?

    If I buy wholesale and sell retail, that's investing?

    Similarly, if I buy land right now and sell it to someone else later, that's not investing?

    If I buy a chair in a flea market and sell it later with a markup, that's investing?

    Now, if you upholstered the chair . . . Ahhhh, now THAT'S investing, since you indulged in applying capital for TRANSFORMATION (i.e. production, adding value, whatever you want to call it.)

    And you wonder why so many people were suckered into the "invest and hold" game that wiped out so many a nest egg... People confuse investing with speculating or trading.

  • Jim||

    Trespassers W why are you having such a hard time with OM’s simple and correct explanations?

  • ||

    Gold is only worth what someone else is willing to pay for it. You can't use gold to produce goods or services.

    Land is worth whatever someone else is willing to pay for it, or the value of the goods and services you can use it to produce.

  • Mr Whipple||

    You can't use gold to produce goods or services.

    It can be used to make jewelry, the same way wheat can be used to make bread. It is not a capital good, but it is a raw material.

  • ||

    So you're going to melt your Kruggerands down to make bracelets?

    Didn't think so. Gold's highest value at this point in time is as a means of exchange, not as a raw material.

  • Mr Whipple||

    Gold is a commodity that functions as a "universal" means of exchange for goods and services due to its physical properties, such as high value to weight ratio, and store of value (it won't rot or corrode), among others. So, gold is both, an investment, and a currency.

  • ||

    It's not universal at all. Gold is only a means of exchange among people who are conditioned to think of it as such, and have confidence that they will be able to use it to trade for what they need. If you're going to have an intrinsically-worthless medium of exchange, gold is probably the best choice; but in many situations you're not going to have an intrinsically-worthless medium of exchange. For instance, in a poop-hits-the-fan apocalyptic scenario.

  • In Time Of War||

    It's becoming very clear that land is merely a short-term resource that will be taken from you at will by anyone better connected.
    Purchase the minimum space you need to live, or budget the extra space as an entertainment cost, but don't think of it as an "investment" unless you knonw someone who works for the county assessment office.

  • In Time Of War||

    "knonw" is pronounced "k-nahn-wa" in case anyone's curious. It's an ancient Assyrian word I just made up.

  • A syrian||

    +1

  • alan||

    You know who you are worse than?

    Robert Plant. That's right, Robert Plant.

  • Robert Plant||

    Does everybody hear the laughter??

  • Invisible Finger||

    LAND itself is not an investment, unless you plan to put something on it that makes money - like a factory, or cows. Period.

    Correct. That's why the loans for single-family homes are call MORTgages, they're dead (produce no income) property. That's why, before FDR, you had to put a minimum 50% down to get a residential loan.

  • ||

    Phew, just got done signing papers on my refi. 4.25%, bitches! Bring the inflation, I also have plenty of canned goods and beer.

  • Jeffersonian||

    Don't forget the ammo!

  • ||

    Doy. Got to protect that shit somehow!

  • robc||

    4.25%?

    Hah hah, yours is higher than mine. 221 payments to go on mine.

    Still, nice.

  • alan||

    Cheers to my new best friend.

    What do I bring to the table? My quail jerky will cause your mother to reflexively put her arms up to ward off a slapping when you bite into it.

  • ||

    3.875% here on a 15 year.

    Haven't closed yet, but soon.

  • ||

    My family bought their home in 1973 in Houston, TX for $25,000. In 1995 when they divorced it sold for $179,000. An increase in value of about $150,000 in just over 20 years.

    In 2005, the same house sold for just over $500,000. An increase in value of $321,000 in just over 10 years. Clearly this did not reflect reality.

    Expect housing price to be half what they were "pre-collapse." At best.

    Long term, owning your own home is still the best policy for creating real wealth for most people. Folks just got greedy and banks did too. This shall pass.

  • ||

    Uh, you do realize the $25K->$179K rise over 22 years has a higher CAGR than a $179K->$500K rise over 15 years, right?

  • BakedPenguin||

    Dr. K - did you account for inflation? It was pretty bad from 1974-1980, and that ate up a lot of the nominal gain.

  • ||

    No, and I also messed up the length of time on the 2nd period, but my point is that comparing the dollar amount of the gain is not a useful way to look at it.

    A closer examination may reveal that the second rise was unwarranted in a way that the first was not, but you can't do that by looking at the raw gains.

  • Ted S.||

    Well, Tom's figures had the $179K -> $500K rise in 10 years.

    And inflation was higher in the late 1970s, which in theory should have pushed the price of *everything* up more then than it would have in the late 90s and early 00s.

  • Scooby||

    My calculations show that the more recent period has a bit higher CAGR(10.8% per annum for 179k->500k over 10 years vs. 9.4% per annum for 25k->179k over 22 years).

    Not a huge difference, though- especially not enough to "not reflect reality."

  • curmudgeon from Up||

    ...you can live in a car but you can't drive a house...

    Poppycock, you just need lots of balloons.

  • ||

    Why not pass a federal statute ordering Americans to purchase real estate?

    COMMERCE CLAUSE to the rescue!

  • Amakudari||

    I wish I could format this better, but I slapped it together based on the latest Case-Shiller release. It has massive lag, but any sort of measurement error is insignificant versus the implications of the trend. 19 of the 20 metro housing markets measured are double-dipping except those that never went up in the first place. The only one that isn't is DC.

    I'm highlighting the list below for cities where housing markets are within 2% of their lowest valuation since the crisis started. Many of the cities that aren't at their troughs are just very near their troughs. The article points out the former -- perhaps a nice speaking point -- but it's not like Detroit or Phoenix should feel good just because their houses have increased in value by a fraction of a percent after losing 50%.

    City [Now vs Peak%] ([Trough vs Peak%])

    1. Las Vegas -57.6% (-57.6%)
    2. Phoenix -53.7% (-54.1%)
    3. Miami -48.3% (-48.3%)
    4. Detroit -45.8% (-46.0%)
    5. Tampa -43.8% (-43.8%)
    6. Los Angeles -36.9% (-41.3%)
    7. San Francisco -36.7% (-45.0%)
    8. San Diego -36.5% (-42.1%)
    9. Minneapolis -30.7% (-35.1%)
    10. Chicago -27.6% (-27.9%)
    11. Washington, DC -26.5% (-33.0%)
    12. Seattle -24.9% (-24.9%)
    13. Portland -23.2% (-23.2%)
    14. Atlanta -22.2% (-22.2%)
    15. New York -20.0% (-21.1%)
    16. Cleveland -17.3% (-19.3%)
    17. Boston -15.0% (-17.7%)
    18. Charlotte -14.8% (-14.8%)
    19. Denver -10.6% (-11.9%)
    20. Dallas -8.1% (-8.8%)

  • robc||

    Unfortunately, Case Shiller doesnt cover such places as Sioux Falls, which might be up since the peak (national peak obviously, not its peak). Thats what happens in places that didnt bubble to begin with.

  • ||

    Well, a lot of the "not bubble" places are actually in the "at or below the trough" category-- Dallas and Charlotte, for example. I think that being "below the trough" isn't so bad when the trough is 8.8% or 14% below peak, as opposed to 50% below peak.

  • Amakudari||

    Right. The post above wasn't trying to draw any conclusions other than the irrelevance of what's below its trough when so many places are just very, very near. The rest is just the data.

    Anyway, I'm from Charlotte. Seeing it lumped in with Las Vegas really misses the point; there wasn't much exuberance to begin with. Heck, for a city that just lost one of its major employers (Wachovia) and has another in perpetual trouble (Bank of America), all feeding a pretty high unemployment rate, 15% ain't bad.

    It's probably more accurate to say:
    * The housing bubble was extremely regional (CA, NV, AZ, FL, MI).
    * The main metro areas that have seen prices recover somewhat from their trough were DC and cities in California.
    * Prices have started falling everywhere except DC. Generally, prices aren't much better now than they were in the depths of the recession.
    * C-S data only goes through September, and it uses a 3-month rolling average, so we're looking at the average of prices from 2.5-5.5 months ago.

  • ||

    I would like to see the actual prices.

    a 250,000 3 bed 2 bath in phoenix turning into a 125,000 home is not the same as a 600,000 3 bed and 2 bath in LA turning into a $380,000 home.

    I do like how Tim called this:

    20. Dallas -8.1% (-8.8%)

    a bubble.

    hey Tim an 8% drop during the worse recession since the great depression is not a bubble.

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  • Tman||

    So is there anyone who actually still lives in Las Vegas? All the reports I've seen and the stories I've heard from recent visitors leads me to believe that the entire city will be empty in about two years.

    And yet Harry Reid, one of the people you could actually point to as partially responsible for the mess in Vegas, gets re-elected by his state.

    I don't get it.

  • ||

    Harry got re-elected due to the natural fear of crazy women in a large portion of the population. As much as I share this fear, I wouldn't have voted for Harry.

  • alan||

    I wonder if Harry were a skirt any one would see any marked differences in the crazy between those two. Is that a sexist thing, or the media lets democrats get away with everything thing.

  • Draco||

    It shows that Americans are slowly waking from the delusion of the wealth effect Froomkin alludes to. It was never wise to factor your real estate wealth into incidental spending decisions.

    This is wrong - or else incoherent. All reasonable economic actors factor their current level of wealth and their prospects for income into their spending decisions (which are nothing but decisions between saving and spending). Why are houses any different? They aren't. Stocks. Bonds. Houses. Gold. Uranium. Saving account balance in USD. Food stores in your basement. All of them have values which fluctuate every day - including your cash money.

    To blame people for taking their wealth into account (at today's mark-to-market values) when they spend or borrow is ridiculous. It's what any rational person must do. The mistake is in leveraging something whose value is more volatile than you lazily assume it to be, until you realize too late that you're in over your head.

  • ||

    The mistake is in leveraging something whose value is more volatile than you lazily assume it to be, until you realize too late that you're in over your head.

    I think that's what Tim was saying. He referred only to real estate wealth, which is notoriously volatile.

  • Goobs||

    Real Estate Wealth is NOT notoriously volatile. It was volatile in the recent bubble, but it generally has a record of steady appreciation.

    And damn do I appreciate my underwater house ever more each night.

  • Invisible Finger||

    Real Estate Wealth is NOT notoriously volatile.

    Three bubbles in 40 years (Southern Cali) is the very definition of volatile.

  • Tim Cavanaugh||

    Even if real estate were less volatile than other prices (it's middling in that regard), it can take half a year to sell a piece of real estate even in a strong market. Real estate's low liquidity is both why it's not something rely on when you're making impulse buys and why house-hunting is such a grueling, frustrating activity.

  • ||

    Real estate is not notoriously volatile in the absence of growth management laws (like strict zoning.) In the presence of growth management, it's quite volatile.

    Controlling supply leads to greater fluctuations in prices.

  • ||

    +10

  • Real Estate Reality||

    The only thing, only thing, keeping the market from hitting bottom and thus recovering is banks sitting on property trying to move them for far more than their value. It takes a damn month to get a bank to respond to an offer. There are lots of buyers, just not at the price banks are asking. And of course, about the time they "let" a house go for its actually value, it no longer has plumbing, electric, HVAC, and other unfavorable forms of abuse. I see it every single day.

    Just another reason that bank bailout fucked the economy. Oh, I mean saved the economy.

  • creech||

    I've heard that trashing a house before being evicted was becoming common. Why do the bank owners let the tenants get away with it? I'm sure if a bank exec was walking down the street and was pulled into an alley and robbed of his wallet, he'd call the cops and prosecute the robber if caught. Here, some known perps have ripped off the stove, plumbing, smashed the walls, etc. and keep getting off scot free.

  • Brett L||

    What assets are you going to take in restitution? Are you going to drive them into bankruptcy? There's no leverage.

  • Real Estate Reality||

    It's not homeowners most of the time. But a great deal of foreclosures were investment with tenants. And most houses being foreclosed on were pieces of shit before foreclosure.

    What I am talking about are fucking banks sitting on houses priced unrealistically. Fannie and Freddie are the worst. Why the fuck should a bank take a hit when they're flush with your tax dollars?

    By the time the assholes sale it to someone who'll renovate the piece of shit (creative destruction if you will) it's costing the investor a great deal more to renovate it because it's been stripped of every metallic material in the house.

    Not to mention the unintended consequences of every goddamn yahoo homeowner watching too much DIY and fucking shit up. Could you imagine buying a car, and the person you're buying it from says, "Yeah, my wife and replaced the brake lines ourselves." Before there were "flippers," people who knew what the fuck they were doing actually renovated homes. I know every idiot out there thinks they are "handy." Well, you aren't; you're a fucking idiot. Stick to accounting.

    It's a fucking mess out there. Nightmare. Crawled a house today: no air handler, no copper, no water heater, no fucking electrical wires. No fucking deal - that piece of shit can sit another 6 months. Who gives a fuck, the banks doing just fine. Aren't they?

  • ||

    Man, I bought my house at exactly the wrong time. I don't even spend most of my time in the US. I feel like I am throwing away 2500 a month.

  • ||

    Probably your best option is for your house to have a fatal "accident." Preferably while you are out of the country.

  • Goobs||

    Since most places where housing is under water the land is the actual value, an "accident" isn't really going to help. For example, even underwater in Pasadena, my house represents less than 25% of the value of my property.

  • Brett L||

    I hope that's Pasadena, CA and not Pasadena, TX. Otherwise Houston area land really is dangerously over-inflated.

  • Invisible Finger||

    I feel like I am throwing away 2500 a month.

    You're throwing away a lot more than that. You're in the military, your sanity and common sense are being thrown away too.

  • ||

    Lets play the "Who Wrote this article game!!!"

    My money is on Tim.

  • FleeingCali||

    So the housing bubble was centered in sunny places (except mich. which has it's own unique issues.)

    Can we blame it on global warming?

  • ||

    Seattle and Portland are not sunny.

    And you can blame it on Growth management.

  • Invisible Finger||

    Did an editorial board write this post?

  • ||

    Why the fuck should a bank take a hit when they're flush with your tax dollars?

    It's not a loss until Sheila Bair says so.

  • Real Estate Reality||

    Hey Cavanaugh, I'm assuming this is your post. I don't have time to read Reason too often, but usually always check out your coverage of the market. You've done an ok job, but you should take a close look at the behavior of the banks as it relates to selling and sitting on property. I think Fannie and Freddie spend 2 billion a year for lawn maintenance.

    There's a reason the current real estate market sucks. Banks. For all of the boohoo stories about "people being thrown out of their homes," they adjust just fine to renting. In fact, I would imagine most are relieved to be doing so. Banks are going to fuck the taxpayer one way or another (by way of Uncle Sam of course). But the longer they sit on property the more ass pounding the taxpayer is going to take. Should have let them fail. Then they would moved that inventory. And the market could have barely started to recover or at least plateau by now. It's going to get worse for everyone as long as they let houses sit on the market. Investors are sitting idle. There are lots of people that can and want to buy, but will wait. More and more neighborhoods are starting to look like Detroit.

  • Josh||

    The 'wealth effect?' Someone needs to read about 'smart growth' and what it does to house prices:

    http://www.cato.org/pub_display.php?pub_id=10570

    I mean, Portland is the posterboy for this stuff.

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