http://money.cnn.com/2012/03/27/real_estate/home-prices/index.htm?hpt=hp_t1 House prices dropping seem good for the economy. If Wages are stagnant, and young adults are now saddled with 80K college loans in addition to stagnant wages, house prices should drop. Home prices need to reach 1980's levels to meet wage deflation.
I got lucky. I was part of the Generation that could get good paying jobs without requiring a college degree. (and good paying jobs were plentiful as well) You still can't seem to answer the simple question. Whats wrong with housing correcting to cheap prices.
Isn't this the same as "Why does every panic when the stock market goes down?" Because of devaluation/wealth destruction... A correction to low home prices would mean that homeowners in general woud have a net loss in their asset base. It's not like lowering home prices would just make cheap homes for those that can't afford them right now. It's really just about picking your poison. Does Bubble Ben flood the monetary system causing dollar currency devaulation or does he let the large the credit/loaning institutions fail so that people can't buy anything substantial that would bring in revenue for the institution?
Nothing is wrong with it, but you are missing the point. Housing has been correcting to "cheap prices" IN SPITE OF trillions being thrown at the problem and killing other parts of the economy in a futile attempt to save it.
In the abstract, nothing. In the real world, if you buy with, say, a 20% down payment, which is considered pretty conservative and safe, you're still highly leveraged to house prices, something most ordinary people simply don't understand. This explains the carnage falling house prices cause. Someone here suggested we do the same thing with houses as we do with stocks: 50% margin. It's an excellent suggestion.
The problem is that the cat is already out of the bag. The US economy hitched a ride on the housing bubble, and like just about every other aspect of this particular economy, rising asset prices are the essential ingredient. Instead of actually admitting that fostering a housing bubble was an enormously stupid endeavour, "we" decided that another few rounds of teaser interest rates and low down payment mortgages was the preferrable course of action. It's the extend and pretend economy...i.e. no rational solution is considered.
There is an assumption that high house prices increase consumer consumption. The central banks will push prices up through low interest rates to fuel this assumption.
But so what. Think about it, all people did was borrow on equity and go into even more debt. If the Average wage is 40K and the average home drops to 75-90K this means the Average Joe will have much less of their income going into a mortgage service money sink. Instead now with a significantly lower cost of living due to homes being cheaper now they will have much more money to spend on discretionary things. More spending based on money VS spending based on borrowing because all the money they make ends up servicing a mortgage debt. IF wages are stagnant and now people have to spend 40-80K for a degree just to apply for work, then housing prices need to correct. We can't have everyones cash flow tied up into servicing mortgages on inflated house prices, especially when the next generation starts fresh in life with 40-80K of non dischargeable debt just for a work permit.
This is the most important point of all. For the first time, America has spent trillions doubling down on a bad bet. The bad bet is on yesteryear's declining assets in, for example, the automotive and housing industries - we all know this was done for political expediency - shhh! don't put in your clever reasoning here, at the end of the day we all know it's true. If we go through a permanent decline like Britain did starting in 1900, historians will point to 2008 - 2009 and say, "that's where it all started to go bad."