Electoral Gold. Texas Tea.

John Tabin sees gas prices falling and wonders how this will affect the Great Democratic Comeback of 2006.

The funny thing about Bush is how closely his approval ratings correlate to gas prices. So if it's true that the price at the pump is poised to keep falling for months, shouldn't we be more optimistic about the GOP's fortunes this November?

I think so. I posed this to a few Republicans at an America's Future Foundation happy hour last night, and their eyes lit up like I'd just told them Rick Santorum had free tickets to Springsteen and wanted them to come with. It's a cliche at this point, but it's also completely true that shelling out $50 to fill a tank of gas has convinced most Americans, against all the macro evidence, that the economy sucks. A sudden 50 cent-per-gallon drop in that price by November would completely change that mentality. Good thing there's absolutely zero chance of a crisis in the Middle East in the next 68 days.

Comments

[Jose Ortega y Gasset]

I am starting to warm up to this Weigel fellow.

[joe]

I like to think that the American public isn't stupid enough to let their opinion of the President be influenced by short-term fluctuations in the price of gasoline.

But I'm probably just deluding myself. People are idiots.

[Ayn_Randian]

People are idiots.

Big surprise that the token liberal has something against the people. I bet you mean "people are idiots, except for me, most of my friends and most of my family".

Or maybe "they're such idiots, that's why I have to plan stuff for them! Those babies, how would they make it through life without enlightened people like me?!"

[MAX HATS]

Or maybe "they're such idiots, that's why I have to plan stuff for them! Those babies, how would they make it through life without enlightened people like me?!"

No doubt, true wisdom lies with the masses. Naturally, you'd agree that Social Security is a fantastic program?

[gaijin]

But I'm probably just deluding myself. People are idiots.

Joe, what could convince you otherwise?

[mitch]

Joe is right that it is ridiculous that the President gets the blame or credit for short term changes in the price of gasoline, but I wonder if he would say the same if Kerry were president and gas prices looked like they might fall.

[Erik]

People are idiots. All people. So unless you're a FemBot in disguise (please?), then you make short-sighted, imperfect decisions as well. So do I.

Good story grab, Dave. Now I'll have time to warm up to wiping my @$$ with a table leg in preparation for the next 2 years of reaming.

[rm2muv]

About the only thing a dramatic, 50 cents per gallon drop in gasoline prices will do is confirm that the oil company execs have been pumping us, and that they'd like to keep their republican puppets in power so they can continue.

I think they are overly optimistic about their ability to fool the people this time.

[TROTSKY]

The amazing thing is that it correlates even in Europe. The French pay something like one-euro-fifty per liter, and they hate Bush.

[TROTSKY]

The amazing thing is that it correlates even in Europe. The French pay something like one-euro-fifty per liter, and they hate Bush.

[joshua corning]

People are idiots.

Big surprise that the token liberal has something against the people. I bet you mean "people are idiots, except for me, most of my friends and most of my family".

perhaps you all should read this book:

http://www.randomhouse.com/features/wisdomofcrowds/

Anyway joe hates people becouse people represent markets and joe hates letting markets determine value...

Other then that I would not put much into the liberals hating people idea...everyone hates people.

If people actually liked people then we would all be natural anarchists.

Note: Its a monkey its a bat its a fucking chupacobra server rat!

[Rick H.]

Or maybe "they're such idiots, that's why I have to plan stuff for them! Those babies, how would they make it through life without enlightened people like me?!"

No doubt, true wisdom lies with the masses. Naturally, you'd agree that Social Security is a fantastic program?

Yes, and that Drug War, the paragon of rational Objectivist thinking! Why, anyone who disagrees is just a bad old elitist who wants to ban the Ten Commandments from my folding money!

...this strawman thing is fun!

[Rick H.]

Or maybe "they're such idiots, that's why I have to plan stuff for them! Those babies, how would they make it through life without enlightened people like me?!"

No doubt, true wisdom lies with the masses. Naturally, you'd agree that Social Security is a fantastic program?

Yes, and that Drug War, the paragon of rational Objectivist thinking! Why, anyone who disagrees is just a bad old elitist who wants to ban the Ten Commandments from my folding money!

...this strawman thing is fun!

[Go Pack Chris]

Why hasn?t anyone of you smart intelligent people pointed out how silly it is to give positive or negative credit to the president for the economy? Just the idea that an economic engine as big as the one in this country can be attributed so a single human being, perplexes me. It continues to amaze me how hard it must be to reside in the White House. People get mad at you for things you have little to no control over.

[Ammonium]

My local gas prices have dropped about 65 cents from the beginning of August ($3.35 to $2.69).

Based on the polls, Republicans still have no shot of winning anything here except county races.

[joe]

Big surprise that a string of libertarians wrote comments agreeing with me, Randroid.

Still smarting over that whooping last month, you two? You're going to pull a hammy straining that hard.

[Jennifer]

The economy doesn't look so great to me. Even excluding gas, inflation's creeping up and prices are rising faster than wages. And the housing market's in trouble, now that the first wave of ARMs have started to adjust, and people are making the shocking discovery that maybe they can't afford an $800,000 house when they only make $40,000 a year. Ordinarily this would only hurt the fools dumb enough to buy more house than they could afford, but a lot of consumer spending these past few years has been fueled by people treating their houses like piggybanks, borrowing against their inflated values so they could buy fun stuff with the money.

Right now the economy looks good because it's fueled by debt--we're like a college senior who's having a grand time taking out student loans and buying fun stuff with them. What happens when it comes time to pay that money back?

[joshua corning]

Why hasn?t anyone of you smart intelligent people pointed out how silly it is to give positive or negative credit to the president for the economy?

And I am suprised that the climate change crowd haven't chimed in with thier "robust" satistics to state that Bush's rising popularity is causing lower gas prices.....

.....and therefore global warming.

What happens when it comes time to pay that money back?

Real estate has utility beyond its monetary value...ie people can always just live in thier over priced homes...which in turn leads to a softer landing then say a stock market bubble...anyway the real estate buble is mostly a regional phenomana...just becouse the areas with over priced homes are disproportiatly represented in the media does not mean all americans are fucked.

As much as you might not like it and dispite some over publisised soft spots this is a real economic upturn.

[rhywun]

I'm clicking the link on "keep falling for months" looking for some supporting evidence, but the article just links to itself. Hm. Anyway, there's the usual end-of-the-summer-driving-season effect, I suppose, but beyond that, what sort of evidence can there be, when drivers are just one ruptured pipeline or mid-east outbreak away from skyrocketing prices again?

[joshua corning]

inflation's creeping up and prices are rising faster than wages.

By the way jennifer you are full of shit on wages...from the New York Times on wednesday:

Between the fourth quarter of last year and the second quarter of 2006, it grew at an annual rate of about 7 percent, after adjusting for inflation

source here:

http://www.poorandstupid.com/2006_08_27_chronArchive.asp#115698360559582481

[Jennifer]

Real estate has utility beyond its monetary value...ie people can always just live in thier over priced homes...

Unless they can't afford it because the resetting adjustable-rate mortgage means their payment has just increased by $600 a month. Or because they strung themselves out in debt, thinking that it didn't matter because they could just re-sell the house for a profit and pay the debt off, only they can't since the value has dropped instead.

I read a statistic that something like 30 percent of job growth since the end of the last recession has been in the construction or real estate industries. This housing mess (and it isn't really a housing bubble so much as a credit bubble, but that's another matter) will have implications beyond only those who can't afford their homes, just as the stock-market crash of 1929 had implications far beyond those people who directly lost money in stocks.

[well, actually]

Ammonium-Based on the polls, Republicans still have no shot of winning anything here except county races.

Where do you live? Bellweather County?

[TrickyVic]

"Why hasn?t anyone of you smart intelligent people pointed out how silly it is to give positive or negative credit to the president for the economy?"

I've been saying that for years, but it is sort of irrelevent because past presidents have received positive or negitive credit. The economy is one of many metrics by which past and future have or will be judged.

So it is fair game regardless of the reality.
But the smart intelligent people knew that already .

[joshua corning]

will have implications beyond only those who can't afford their homes, just as the stock-market crash of 1929 had implications far beyond those people who directly lost money in stocks.

It is good to know that where ever jennifer lives that the scare over softening of the real estate in some regions has reached an unparalled level of pure white noise shrill.

Anyway if you want affordable houseing the best bet is to eliminate large swaths of your states and local goverments regualtory smart growth regime...there is far stronger evidence that inflated home prices are a fuction of shrinking housing supply do to over regulation in certian areas then it does with some broad based malfesence within the credit and home loan industry.

[Jennifer]

So, Joshua, I take it you believe the high rate of exotic mortgages like ARMs and negative-amortization loans is nothing to worry about? Likewise, huge numbers of people in debt over their heads is also no cause for concern?

By the way, I do agree with you that regulations and zoning laws have ridiculous effects on housing. That doesn't change the fact that a lot of people are in debt over their heads.

[joshua corning]

I read a statistic that something like 30 percent of job growth since the end of the last recession has been in the construction or real estate industries.

wow jennifer it is like you discovered platonium...I mean when the economy grows people actaully go out and buy homes and when they do so that increase in economic activity becomes part of the economic expansion!!! Incredible...truely facinating

[Z]

Joshua, the reason the "bubble" is supposed to be on the edge of collapse is partially due to oversupply of housing. some of the really big home builders are backing out of their options to buy land because there are already too many houses on the market.

unfortunately this does not fit in to your preconceptions. better luck next time.

[Jennifer]

Platonium, truely. . .Josh's spelling ability is almost as impressive as his reasoning of why there's no chance of economic trouble ahead.

But all snarkiness aside, I am sincerely interested in knowing why he thinks that adjusting ARMs pricing people out of their own homes won't be a problem, or why a large number of negative-amortization loans on houses whose values are in decline won't lead to economic problems either.

Wait a minute. . . didn't he say once that he was a developer? Ah, now I get it.

[joshua corning]

That doesn't change the fact that a lot of people are in debt over their heads.

I do not dissagree...but compared to say the amount of money being barrowed for stocks durring the internet stock bubble or compared to the value overinflated in stocks in the 1920's...ie a stock can go to zero while real estate alwasy has a value (note my 'you can alwasy live in it comment) and considering that over pricing is only occurring in select markets and also considering that this in no way is new phenomona (i mean how many fucking housing bubbles can be found in the last 30 years in calaforia alone) I think your esimation of doom and gloom is a bit brash.

I think it is great that you are reading up on real estate and its effect on the economy...real estate is one of the few investments that the laymen can invest in, over time, without getting completely screwed, can improve without much complication and with recent advancments in credit products can easily be liquified for thier needs in starting a buissness or sending thier kids to collage or even for retirement...but please just becouse the stock market junkies are jelouse and down playing thier most recent compeditor does not mean you should jump at this latest fad.

[Gene Berkman]

Gasoline was selling for about $1.50 a gallon when Bush took office, so a drop in the price to $2.65 a gallon (or $3.25 in California) still indicates the price has gone up.

High price gasoline is clearly affecting people. And given the instability in the Middle East and its effect on oil production, I think it is legit to blame Bush's war policies for the price of gasoline.

[Jennifer]

real estate is one of the few investments that the laymen can invest in

That's part of the problem right there: unless you're talking about buying real estate in order to generate some rental income, or a few rare situations where (for example) currently deserted land is set to become valuable because an entire city will be built there soon, real estate (or rather, single-family homes) isn't actually an "investment." It's a product, a place to live.

Yes, I hear these old farts saying things like "I bought my house thirty years ago for only 20 grand, and now it's worth ten times that!" Yes, but wages are ten times higher, and the price of everything else is higher, too. So he sells his home for $200K, which is about what it would cost him to buy another place to live (unless he's selling in a high-value area and moving to the sticks, where everythng is cheaper).

A lot of the bubble comes from speculators who think that the price of a single-family home will continue going up and up relative to real wages forever, so you'd better hurry up and buy a house right now because at the current rate of increase, in five years only the top one percent of American wage-earners will be able to afford their own home and the rest of us will live in tents.

Either there's a housing bubble in many parts of the country, or we've entered a new era of American history wherein from now on, only the extremely wealthy will be able to afford a house. I lean toward the bubble theory, especially in those areas where the cost of an average house is something insane like 30 times the average annual salary.

[joshua corning]

Wait a minute. . . didn't he say once that he was a developer? Ah, now I get it.

yup I am a developer which means I have an interest...but it also means I am intimately familiar with the market.

So which is it jenny?

Am I lying to protect my interests or am I simply argueing from my knowledge?

I am sincerely interested in knowing why he thinks that adjusting ARMs pricing people out of their own homes won't be a problem

ARMs are an investment product, a product with risk in a free market that has a less risky competeing product...if you are getting a loan for a home I suggest you become fully versed in those risks and trade off when choosing what kind of loan you choose to finance your new home with.

[joshua corning]

real estate (or rather, single-family homes) isn't actually an "investment." It's a product, a place to live.

you make a good point here...it is a product but a special kind of product.

Compared to say a computer or a car it will not lose value over time...so it is a great place to build equity over time also even if lets say the value of the home stays the same after adjusting for inflation..in that case when compared to the alternative of renting you are still gaining equity by not paying rent.

Anyway real estate is a finite product so in a time when populations are growing we can expect for real estate to gain value over time.

If you want me to say some markets are growing unreasonablly fast then i will say it: Some markets are growing unreasonably fast.

Will people take unreasonable risks in these markets? You bet. But to say that our entire economy is at risk i think is a bit of a stretch.

[joshua corning]

Joshua, the reason the "bubble" is supposed to be on the edge of collapse is partially due to oversupply of housing. some of the really big home builders are backing out of their options to buy land because there are already too many houses on the market.

Supply is always related to price...you should say oversupply of overpriced housing...

As a supplier of land for builders my ralation to this is that I must make sure that the price i sell to the builder be at maximum profit to myself while still garanteeing profit to the builder...if not he will pull out...so what i try to do is anticipate prices when the builder finally sells...if i over anticipate such as forcast just before the market platoues or even dips i will lose my builder...of course nothing is stopping me from just lowering the price...anyway this fluctuation will happen if you live in huston or seattle...and has very little to do with affordable housing.

The land owner, builder, or land developer will always sell and buy at prices the market dictates...regardless if that market has a county planning director constraining supply or not.

[Jennifer]

Compared to say a computer or a car it will not lose value over time

But it generally won't gain value over time either, unless the area it's in changes (like, a sleepy little rural town transforms itself into a business hub). Look at a graph comparing housing costs to real wages over time, and other than the bubbly parts of the graph you'll see home values stay pretty much the same.

ARMs are an investment product

Getting an ARM when interest rates are at their lowest point in history is a sign of pure dumbassery. And getting an ARM that you can just barely afford, and hoping against hope that interest rates (lowest in history!) will never ever go up because if they go up even a half-percent you're screwed . . . I have little sympathy for these people.

And those negative-amortization loans, for ordinary families buying ordinary homes, are even more asinine. Your monthly payment doesn't even cover all the interest, so the extra interest is tacked on to your principal every month and your debt actually grows larger as you make your payments? Makes sense if you expect the real value of a home to grow by ten or twenty percent each year, as it does in a bubbly economy, but anyone who thinks such large increases are permanent is a fool.

Anyway real estate is a finite product so in a time when populations are growing we can expect for real estate to gain value over time.

If real estate is a finite product, then how can there exist developers making more homes? Land is finite; home stocks are not. I know that down in Miami, they're still building new condos even though there's a huge backlog of unsold ones already. Even here in Connecticut prices are beginning to drop a bit, and this isn't even one of the super-bubblicious regions of the country.

[rhywun]

But to say that our entire economy is at risk i think is a bit of a stretch.

No, just the economies of the most populous regions along the coasts. But fuck those elitists, right?

I suggest you become fully versed in those risks and trade off when choosing what kind of loan you choose to finance your new home with.

Yup, "read the fine print". The terms are plain and simple. I'm sure no one is going into those loans without knowing them in the minutest detail...

Shit, I get 10-page inserts in my monthly bank statement that I can't understand even when I *try* to read them. I can only imagine the amount of obfuscation that goes into today's mortgages that use trickery to convice people they can "afford" their new house. I say "I can only imagine" because I look at my salary and at the going rate for condos in my area and just laugh. I'm sure there's a clever loan out there for me but I'm not stupid enough to fall for it.

[Rex Rhino]

But all snarkiness aside, I am sincerely interested in knowing why he thinks that adjusting ARMs pricing people out of their own homes won't be a problem, or why a large number of negative-amortization loans on houses whose values are in decline won't lead to economic problems either.

Jennifer, your economics are a bit off.

Lets say the housing bubble burts... Lets say the value of housing drops, lets say there is millions of people in debt who can no longer afford to pay for their homes when their adjustable rate morgages change.

Do you really think it is in the interest of banks and mortgage companies to drive people into bankruptcy and sell off their homes? First, they are not going to get much for those homes, because the value of the homes would have gone down in the bursting bubble, and too many people will be frightened to purchase or unable to get out of their current mortgage.

Most likely, banks and mortgage lenders will allow those people to continue owning the home and making payments (because it is much better for someone to owe money and make payments, even if those payments are significantly less than expected, than to take away their home just for the sake of taking away their home and selling it for next to nothing). Most likely, people will be allowed to make smaller payments, but they will pay way higher interest, over a much much longer period of time.

It will be nothing like the great depression.

[joshua corning]

Getting an ARM when interest rates are at their lowest point in history is a sign of pure dumbassery.

I agree but getting an ARM when intrest rates are high is a good idea or when you plan improving what you buy and then selling it fairly quickly..or as you stated when you expect growth in your area...so what do you want to do? Outlaw ARMs becouse some people are dumb asses even when others use them for good reasons?

I mean you do have to admit that banks have an interest in not letting a loan default right? So as i stated before your fear of a colapsed economy would have to include the complicity of banks nation wide.

Not that this hasn't happened before...but is there evidance now that this is happening? I mean aside from your constructed anectotal eveidence of commen human stupidity.

No, just the economies of the most populous regions along the coasts. But fuck those elitists, right?

LOL 🙂 Well fuck rhywun what do you want me to do put a flaming bag of shit on california's congress door step...look I fight for affordable housing every fucking day at work..i yell at my county commisioners i gave money to I 933 in washington. i tell other people i interact with in the industry what i think the problem is and how to solve it.

I think the problem is over regulation...a constrained supply of land not uncommen to coastal blue states...thats what i think the problem is so i try to fix it...now jennifer and i guess you want me to change my path and go after "Dumb people" who take stupid loans propegated by an irrisponsible loan industry???

i mean come on...i wouldn't even know where to start (what kind of libertarian response do you have to your definition of the problem) and not to mention I am completely unconvinced that this is the problem.

[rhywun]

I think the problem is over regulation...a constrained supply of land not uncommen to coastal blue states

Yes, that's part of the problem. Not so much the shortage of land (that's a given, at least here in the northeast) but the over-regulation, both in elitist suburbs and elitist parts of the cities that don't want any "change". I live in a six-story neighborhood in Manhattan that's rapidly filling up with high-rises and oh, the complaints about that I hear. Second only to the complaints that the rent is so high... Morons.

what kind of libertarian response do you have to your definition of the problem

There isn't one. At least not one that doesn't wind up telling millions of Americans that the "American Dream" is out of their reach.

[Shannon Love]

Jennifer,

I think you need to calm down. People have been predicting some kind of debt driven crises for the last 25 years and it has never materialized. Affordable housing is one of those perpetual crises. You never find an time in the post-WWII era when some people were not panicking over it for one reason or the other.

This too will pass, probably without leaving a ripple.

[Lowdog]

Shit, I hope the housing market at least levels out. I live in Phoenix, and while, like rhywun, I could probably find a loan that could get me into a house I want, I know it wouldn't be good idea to get into such a loan.

Maybe when some of these dumb people get foreclosed on, I can sweep in a get a reasonably priced home (if I decide to stay here, of course). Yes, I'm an asshole.

[Jennifer]

yup I am a developer which means I have an interest...but it also means I am intimately familiar with the market. So which is it jenny?

Considering that your intimate familiarity includes thinking many bubble areas currently suffer from a housing shortage rather than a housing (especially condo) glut, I'd go with "have an interest," joshy.

I think you need to calm down. People have been predicting some kind of debt driven crises for the last 25 years and it has never materialized. Affordable housing is one of those perpetual crises. You never find an time in the post-WWII era when some people were not panicking over it for one reason or the other.

I think you're misundersanding me, Shannon--I am not worried about affordable housing. Actually, I'm confident housing prices will drop before too long, because I think right now we're in a bubble. But if I'm wrong--if there's no housing bubble and these ridiculously high prices are here to stay--then it is indeed true: only the rich will be able to afford a house.

That's not a false dichotomy: those really are the only two choices in many places, especially in areas where the average house costs ten or twenty or thrity times the average annual wage.

Centuries ago, one of my Dutch ancestresses sat in a coffeehouse saying "Thou misunderstandeth me, Shannon--I sayeth not that poor people shalt never afford tulips again; I sayeth there exists a tulip bubble which shalt pop ere long."

[Jennifer]

what do you want to do? Outlaw ARMs becouse some people are dumb asses even when others use them for good reasons?

What? Where have I called for any laws here? I am listing the reasons I think we're headed for trouble, but I have called for no government action. And I'm not saying ARMs are intrinsically evil--I am saying a lot of stupid people got ARMs when interest rates were low, and now interest rates are rising and they're going to be screwed. And there's plenty of other idiotic debts out there, and I think the sheer number of people in over their heads will be enough to cross the line from a bunch of personal problems to a society-wide problem.

As for what I want to do, the same thing I've been doing: keep renting, keep socking large amounts of money away each month, and when the prices drop I've got my 20% down payment and plenty left over.

[thoreau]

Since everybody is jumping all over Jennifer for her suggestion that maybe, just maybe, a large number of people made bad financial decisions, I'd just like to make two points that might warm libertarian hearts on this cold rainy evening:

1) Remember that, as good libertarians, we believe that we're smarter than everybody else. So it's OK to say that maybe, just maybe, a large number of people made bad financial decisions.

2) It would be tempting to say that there's no possible way that uncoerced decisions could ever possibly result in painful economic consequences (not catastrophic, just somewhat painful). But we must remember that we don't live in a laissez-faire market economy. There are regulations in place. Which means that we can wave our hands and assume that if there is a downturn it will all be the government's fault.

OK, to be serious, Jennifer isn't calling for any laws and neither am I. The observation is simply that sometimes shit happens. That's all. Is that really so unthinkable?

[JKII]

I ain't no school boy about the economy but I know what I like. I like high gas prices, I mean really high, so fucking high there won't be so many cars on the LA freeways and I can get to my customers' facilities faster so I can bill more hours. The value of my services will not be impacted by high gas prices. And I like low housing prices, 'cause I can't afford a house now.

[joshua corning]

Considering that your intimate familiarity includes thinking many bubble areas currently suffer from a housing shortage rather than a housing (especially condo) glut, I'd go with "have an interest," joshy.

There were a few other reason hit and runners at that thing a few weeks ago...you know with the pictures...anyway can anyone coaborate this mythical land where jennifer lives where somehow excess supply equates to rising prices?

[P Brooks]

High gas prices, and debt.

I am a C O D kind of guy, but it pleases me immensely to be able to stick a little piece of plastic into the gas pump and fill the fuel tank on my sixteen year old (35 mpg) Honda without ever setting foot inside my friendly neighborhood Conoco station. I avoid both standing in line, which I despise intensely, and dealing with the morons on either side of the counter.

"So what," the chorus cries. I, when the bill comes, pay it. In full. And I wonder how many people, who stick the little piece of plastic in the gas pump, only pay the bill in part. Has the significant increase in fuel costs since the first quarter of 2003 (what happened then? he mused) been paid, or has it been borrowed? Have people been refinancing their houses to pay their commuting costs? I haven't seen the consumer credit numbers lately, but last time I looked, they did not fill me with optimism.

ps- If you want a cheap house, move to Indianapolis. I'll even sell you mine, because I don't need it any more.

[AC]

Lowdog:

Just wait a few more months. The rate of homes for sale has jumped, and the prices are plummeting. I know of several houses selling for $100k less than their purchase price of a year ago. More than a few house-flippers are sorry right now.

[Ken Shultz]

It's a cliche at this point, but it's also completely true that shelling out $50 to fill a tank of gas has convinced most Americans, against all the macro evidence, that the economy sucks.

I don't know how you justify saying that's completely true.

Here's a link to a graph of the consumer confidence index. It looks like they're more focused on unemployment. The perception of how their home price is doing probably plays a part too--among myriad other things. Regardless, it looks like consumer confidence and the price of unleaded gas often move in different directions. ...just look at August.

http://www.tfc-charts.w2d.com/hist_UG.html

...if consumer confidence and gas prices did move in tandem as "completely" as you suggest, I'd stop working and just short or long retailers based on the movement of unleaded gas.

P.S. Yes, I know consumer confidence is tough to measure--but I'm not the one saying that it's "completely true" that higher gas prices convince most Americans that the economy sucks.

[kevrob]

.....even if lets say the value of the home stays the same after adjusting for inflation..in that case when compared to the alternative of renting you are still gaining equity by not paying rent. - jc

That's true, but what are you paying to get that equity?

a.) The difference between what you would have paid in rent and the mortgage payment.

b.) Any investment income you might have earned on said difference. Less taxes, of course, but some or all of the investing could be in a tax deferred manner - IRA, 401(k), etc.

c.) Property taxes paid over the years.

d.) Costs of repairs and maintainance, insurance, tools renters don't need. I don't maintain the lawn, so I don't own any lawn equipment. I do have to plug quarters into my building's washing machines.

Seems to me that you'd have to make an on-paper, inflation-adjusted profit in order to "break even."

Kevin

[Rex Rhino]

Seems to me that you'd have to make an on-paper, inflation-adjusted profit in order to "break even."

It depends on the cost of rent where you live. Here in Toronto, rent controls mean there is no profit to building rental apartments anymore, but lots of profit to building and selling condos. Shortage of rental places = high rent (I won't mention the irony of rent controls driving up the cost of rent... OK, I just did), abundance of places to purchase = lower cost (relatively speaking, of course).

All this means that it costs about the same to buy as it does to rent someplace comparible. So, if I pay $X dollars a month for rent, or make the exact same payment to own the place, it would be absolutely stupid to rent. Even if the bank reposessed the place tommorow and all our payments into it were lost, it still wouldn't have been THAT bad a deal compared to renting.

[kevrob]

....rent controls mean there is no profit to building rental apartments anymore, but lots of profit to building and selling condos. - RR

Well, if your local government is going to put its thumb on the scale in that way.....

Shortage of rental places = high rent (I won't mention the irony of rent controls driving up the cost of rent... - RR

Unintended consequences! What a surprise! Hey, I grew up in Greater New York, so the artificial restriction of rental properties isn't strange to me. If you define "average rent" to include brokerage fees for finding an apt., "key money", and all the other tricks to get around the rules, I am more than convinced that controls drive up rents.

All this means that it costs about the same to buy as it does to rent someplace comparible. - RR

But isn't it the case that people moving from renting to owning typically buy "more house" than they would rent? I don't think anyone rents a McMansion, and while the luxury apartment market in my town has tanked of late, several of those tony towers are going condo.

Kevin

[joe]

"anyway can anyone coaborate this mythical land where jennifer lives where somehow excess supply equates to rising prices?"

Uh, yes. Anyone with two brain cells to rub together will realize that rapidly rising prices of a product will cause that product's suppliers to increase their output to take advantage of those prices. This esotertic phenomenon is called "the business cycle." And, low and behold, since home prices have gotten so high

I suggest, smart guy, that you stop lecturing people on economics.

[joe]

"anyway can anyone coaborate this mythical land where jennifer lives where somehow excess supply equates to rising prices?"

Uh, yes. Anyone with two brain cells to rub together will realize that rapidly rising prices of a product will cause that product's suppliers to increase their output to take advantage of those prices. This esotertic phenomenon is called "the business cycle." And, low and behold, since home prices have gotten so high in certain markets - particularly condo prices, particularly condos in urban areas - there has been a boom in the number of them coming onto the market - exactly what Jennifer is talking about.

I suggest, smart guy, that you stop lecturing people on economics.

[kevrob]

There are endogenous factors leading to the popularity of condos. In my neck of the woods, some empty nesters are selling their big suburban houses and moving into some pretty swanky digs, sometimes with river and/or lake views. The oldsters have quick access to cultural venues they enjoy - opera, ballet, live theatre, the symphony, museums - not to mention scads of restaurants, parks, and even local universities. Add them to young professionals who haven't started their families yet, but are ready to switch from renting, and the market has been pretty good. Downscale condos - well, not so much. Folks with kids or who prefer to live in suburban solitude were still snapping up big houses in the exurbs, at least before the latest stall in housing sales, and we still have some folks gentrifying old stock in funky urban neighborhoods. Many gubmint employees have to be residents of the city or county they work in, which artificially pumps up the urban market, some.

Selling a big house at the top of the market, buying a smaller home and socking away part of the proceeds in other types of investment may be a very good strategy for those at or near retirement.

Kevin