Why is low housing prices a problem?

Discussion in 'Economics' started by noob_trad3r, Jan 25, 2011.

  1. If housing prices plummet lets say to 1980 prices wont that make the wages people earn tolerable?

    If wages are deflating over the decades, dont assets need to deflate?

    If the average wage is 34K, then the average home should not cost 500K it should cost 70K

    And that would be better for our economy since amercians wont be house poor and would have much more discretionary income left over for spending.

  2. What about the people who bought a home in the last decade who will now be underwater on their mortgage? If they choose to stop paying on their current home to get a cheaper home their credit will be shot, and they will most likely not be able to get a loan on the cheaper home. If they saved up cash to buy a new home and dont care about their credit score than that is a different situation.
  3. If they bought a home to live in, why would they care? If they can pay the mortgage as they have been doing for 10 years. how does it change the fact that the home they bought was for shelter purpose?

    it seems stupid to think that it is a good idea to make housing so expensive that it requires people to borrow for 30 years and be house poor.
  4. Using mark-to-model accounting, most US banks would be rendered insolvent with low home values. Under mark-to-market, another leg down would stimulate a wave of distressed selling and foreclosures, forcing banks to make big writedowns on their asset and capital ratios.
  5. I'm not sure what or why people expect this to happen.

    There's plenty of neighborhoods where the house prices have dropped to reflect income. A former blue collar neighborhood where house prices have dropped, taxes are usually higher relative to more expensive homes. You can get a nice house but taxes are high.

    If you're hoping to pick up a 500k house for 70k because of some macro situation based on wage levels, I just can't see that happening.
  6. 20% down should be standard business practice. Rent untill you can aford a sizable down payment.
  7. Why? 90% leverage is good for real estate. 95% is better.

    You can buy an auto probably @99% leverage and be underwater when you sign on the dotted line. I don't get the "underwater" on home mortgage. People buy cars and trucks and live the life "upside" down on a loan forever and never break a sweat.
  8. I guess if you have insurance 90-95% can done. FHA has raised their monthly insurance over the past year, and homebuyers I work with dont like the idea of paying an additional 100 to insure their mortgage. 20% down gets rid of PMI
  9. poyayan


    Asset inflation = free money = free GDP grow. It is that simple.
  10. I wonder how many of the homes that were bought in the 5-7 year frenzy starting in 2000, were bought to live in...

    we have tons of condos that are vacant down here...
    #10     Jan 25, 2011