Disappearing now: $6 trillion in housing wealth

[bronxiteforever]

L.A. Land: latimes.com

A Washington think tank is warning that housing prices are falling at an accelerating level, destroying wealth at a pace that will cost the average homeowner $85,000 in lost wealth this year alone.

The projections by the Center for Economic and Policy Research are based on the numbers in Tuesday's Case-Shiller home price index, which showed accelerating price declines in most big cities.

The annual rate of price decline over the last quarter was 24.9% in the 20-city index and 25.8% in the 10-city index," the center said in its Housing Market Monitor today. "At this rate of price decline, the excesses of the housing bubble will have largely disappeared by the end of the year. At the same time, the price decline implies an incredibly rapid loss of wealth. In real terms, the rate of price decline in the 20-city index would imply a loss of almost $6 trillion in real housing wealth over the course of the year, an average of $85,000 per homeowner."

http://latimesblogs.latimes.com/laland/2008/04/disappearing-no.html

[JDPriestly]

1. The next president will face an economic disaster.

Younger people have time to adjust. It is those of us who have been pushed out of good jobs due to our age and who are no longer competitive in the marketplace whose standards of living will decline drastically.

Renters may also suffer. I have heard that rents tend to rise when housing prices decline. That may be due to increased demand for rental properties.

[bronxiteforever]

4. That explains, in part, why so many young people are going to pawn shops

Because rents are rising and the young are the least likely of age groups to own a house.

[fasttense]

2. Imaginary wealth is so much easier to spend.

The CEPR says prices are falling so rapidly that the bubble will be gone by the end of 2008, but the loss of housing wealth will be massive.

I always say that like stocks, a house is worthless until you sell it.

[dipsydoodle]

3. the excesses of the housing bubble

That's the whole point. The $6 trillion is an accounting figure based a situation which probably would never have occured in the absense of the sub-prime mortgage issues etc.

Bubbles have a reputation for bursting.

[nealmhughes]

5. South Sea, Yazoo, and the granddaddy of 'em all: Tulipomania.

Things only have the value that others accord them. Other than sheer cost of labor, construction materials and pemits, the value of a house is only worth what others subjectively assign it. Location etc. is only a fancy k-factor and ever changing.
The massive shipments of gold from the Aztec and Inca empires made the price of gold much cheaper than it had been in Europe at the start of the 16th Century, silver, too, from Mexico.
Cotton when it had to be hand-processed (lint separated by hand from seed) was a luxury product. Enter Eli Whitney and then the Lancashire mills. The rest is history.

[Warpy]

6. The paper equity was never really there

and was a factor only if the people holding it were using it to leverage debt.

That's the real problem with the loss of all this fantasy money. People have been using their net worth on paper to leverage debt to compensate for shitty wages.

[NMDemDist2]

9. unless you sold at the peak of the market

:evilgrin:

[Warpy]

10. Or shortly after, when you read the writing on the

multiple for sale signs on the block.

:evilgrin:

[CanonRay]

7. It's only a loss if you sell!

Otherwise, it's just paper anyway.

[leftofthedial]

8. MISSION ACCOMPLISHED!

game over. republicans win.

[roamer65]

11. I'm glad I avoided buying in 2005.

I have already save myself from 50k in negative equity.

[gravity]

12. That was fake wealth that disapeared

It was a bubble that was fueled by irrational exuberance, not real wealth. If your home appreciated 30% one year, then falls back to its orginal value, nothing has changed.

Some people are going to be hurt by the fallback, but I am looking forward to when housing prices start reflecting reality again.

[aquarius dawning]

14. It wasn't fake if you bought a $100,000 for $150,000. That's the whole problem with all of this.

people were given loans for houses that were over valued. Now that their investment has tanked, they're allowing the bank to foreclose on them rather than taking the $50,000 loss. The ARMs forced onto sub-prime borrowers and the loss of the middle class jobs created during the Clinton years plus the weak dollar problems have turned it all into the perfect storm. I'm not telling anybody here anything that they don't already know though.

[aquarius dawning]

13. I'm looking at purchasing my first house actually. I had a realtor tell me yesterday

"disregard the listed price, we'll look at any offer". The property in question was probably worth $170,000 3-5 years ago during the bubble's peak. I think they'll take $135,000 today and walk away very happy. I think they'll take less than that and walk away period.

[dugggy]

15. Only the "bubble" wealth disappears.....something that was on paper

If a house went from 200k to 300k in 2 years, and then went back to 250k,
that is NOT 50k loss. It is simply trimming capital gains to a normal level.

People dumb & desperate enough to pay bubble prices can't blame anyone but
themselves for the mess they are in.

[aquarius dawning]

16. If you bought a $100,000 house and now it's worth $75,000, you lost $25,000 in real money

It's no different than buying 1,000 shares of Microsoft at $28.00 a share today and then having them drop to $25.00 tomorrow. You just lost $3000 in real money. Now youhave to sell your investment at a loss or sit on it until you make your money back which is not guaranteed and not always possible in the case of home sales.

[dugggy]

17. If you paid the inflated price of $100k for a house, you are a

sucker. Everybody and his uncle knew houses were in bubble.
But the bigger fool theory prevailed and people chased higher
and higher prices until the bubble burst.

[elizfeelinggreat]

18. I'm waiting to hear

that the CEOs who allowed those mortgages were the biggest fools and suckers.

Because, you know, they lost their jobs and had consequences for their suckiness.
Fair is fair, right? Oh wait ...


Funny how only Joe Public has to eat his equity loss while Joe Corporate gets bailed out by our government. Again. Oh wait ... I mean their government.

[dugggy]

21. Now there I agree with you...CEO's are the modern day Robbers

[aquarius dawning]

19. I have to disagree with that. It seems a little too much like "let's just blame the victims" to me.

[dugggy]

20. It's no different than buying a stock which then goes down

you then have a capital loss if sold, and nobody is
to blame except you. The taxpayers should'nt and would'nt
bail you out. Exception is when fraud was present such as in Enron.

[aquarius dawning]

22. Fraud at multiple levels was present in the case of the housing market situation.

furthermore, a family doesn't have to purchase stocks but they do require a roof over their head. There is a similarity but there is a fair degree of dissimilarity as well. True, there was speculation as in the stock market and I have little sympathy for those who speculated poorly; however, not everyone who has seen their home values fall was involved in speculation. Homes that weren't even purchased during the bubble are depreciating as well for one and, for two, some folks just needed a house and had to take their chances. Sub prime borrowers in this catagory of course paid an even heftier price (sub-prime borrower = mostly poor folks in my book) these folks were a victim of poor timing as much as anything. if only they could have waited until now to buy. I'm not proposing a bailout for anybody at this point, I'm just arguing that the losses were real, not imaginary and, as such, the consequences are real.

[dugggy]

23. Family can always rent instead of buying inflated house

[aquarius dawning]

24. I'm sure plenty of them are now and many more will be in the future.

Works well for me as I'm house shopping right now. It still sucks to see all the foreclosures and the fallout. I remember arguing with some Republicans on a conservative site about 2 years ago about the state of the economy. they, of course, wanted to claim that it was a great economy with no signs of weakness in site. I pointed out the recent and alarming increase in home foreclosures and argued that this was evidence of a major failure somewhere. They argued that foreclosures weren't a key economic indicator and laughed it off pointing out GDP numbers. I turned out to be right. Before that, back in may of 2005, I argued with a realtor friend that the housing bubble was going to burst. He looked at me like I had just kicked his dog and disregarded me. I was right there too. Now, here in this little thread, I'm just arguing that the losses are real and "palpable". It seems like you're arguing against a bailout. I really don't know what the solution is here. I think it's like Iraq, there are no good solutions that make everybody happy.