During the last administration a fair housing rule was put into place requiring cities to build subsidized housing in new areas.
In other words, if you had in fact created a Ghetto you were supposed to build in other area to better integrate communities.
This was opposed naturally enough by those communities who argued, among other things, that it would hurt property values to have low income housing built in their middle income neighborhoods.
Admittedly it is a tough question and you have to decide what is the public interest?
Building more and more housing in neighborhoods that are generally poor continues a cycle of bad schools, drugs, gangs, crime and public assistance.
Building in better neighborhoods has historically had varying degrees of success. Long term though public housing has not generally been a great success in improving quality of life.
One of the reasons for that is where it is successful in helping a family improve their income level, they move out, either because they can afford to or because they are no longer eligible.
So the long term residents become those who have the worst problems with a significant turnover.
Now to the extent people did improve their situation and move on, it is a success, having provided a family with a somewhat secure environment they could afford.
The impact on the neighbor hood is however almost always a negative one.
So objection to such housing isn't simply a racist one, although there is always some of that, it is recognition that such housing tends to deteriorate over time.
It is a legitimately difficult situation and maybe something else is needed.
Rolling back the rule may actually allow more housing to be built since many projects ran into significant opposition. Maybe.
Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
Tuesday, August 14, 2018
Wednesday, July 29, 2009
Housing prices
Yesterday we got the Case-Schilling housing report and it showed that in most parts of the country housing prices either held their own or went up a bit from May to June.
Now the increases weren't dramatic and prices are still down from a year ago (can't imagine that should surprise anyone) but if prices have stopped going down month to month in most places and stabilized or gone up it would be a very positive sign.
Now most analysts do see it as a positive sign but of course they are all hedging their bets and some are completely discounting it.
The main arguments you hear or read about why it doesn't mean much include:
- Prices are still down since last year
- The houses being bought are foreclosure houses
- The buying is artificial because of the $8,000 Government stimulus for first time buyers
- Many of the houses are being bought by speculators trying to turn a profit
- This is only a pause and the descent will begin again as unemployment continues to rise
- There are many houses where the owners and/or the banks have not put them up for sale because of low prices.
Now, some of these statements are clearly factual and a couple are suppositions. The one about additional foreclosures and price declines coming as unemployment rises is the most speculative and would require the economy to have a second dip. Of course this is possible but based on most current indicators just doesn't seem very likely in the near term.
The fact that prices are down from last year is true but not sure what it matters. If prices rise at a very slow pace from here, by next June, we will see prices being higher year over year. It is both unlikely and probably undesirable for prices to escalate at too high a pace. We just got out of a housing bubble and once prices bottom, as they very well may have, we simply want to see them increase in line with the economy as a whole.
Yes the Government housing stimulus is likely have an impact and the question has to be will buying continue after it ends. That is a fact that won't be answered until it ends but the hope is that by then, the economy will be improving enough on its own. It is also very possible that the incentive may be extended or even revised to include all buyers. Time will tell.
If speculators are buying the houses with the hope of turning a quick profit or turning them into rentals with the hope of long term capital appreciation, I'm not sure why this is a bad thing. We certainly wouldn't want to see a speculative frenzy leading to another bubble but investing i housing, flipping houses or renting out units seems like a sign of recovery rather than anything else.
Yes, a lot of the houses being sold are foreclosures. Makes sense since they are the lowest houses out there and why wouldn't they sell first? Once again, we clearly want to get these houses back into the marketplace. What would be the alternative to selling them?
The fact that people are not putting houses up for sale because they are hoping for prices to rise is another fact that may very well be true and may act as a damper on prices since they will put houses up for sale as prices rise increasing supply. However, this will only happen if prices rise and will help avoid potential bubble conditions. Not a terrible thing.
Of course for those folks who are convinced, or possibly just desirous of a true economic catastrophe, nothing will convince them things are getting better. For most of us the fact that housing prices were stable month over month is good news, although we need a few more months of increases to see a true trend.
Now the increases weren't dramatic and prices are still down from a year ago (can't imagine that should surprise anyone) but if prices have stopped going down month to month in most places and stabilized or gone up it would be a very positive sign.
Now most analysts do see it as a positive sign but of course they are all hedging their bets and some are completely discounting it.
The main arguments you hear or read about why it doesn't mean much include:
- Prices are still down since last year
- The houses being bought are foreclosure houses
- The buying is artificial because of the $8,000 Government stimulus for first time buyers
- Many of the houses are being bought by speculators trying to turn a profit
- This is only a pause and the descent will begin again as unemployment continues to rise
- There are many houses where the owners and/or the banks have not put them up for sale because of low prices.
Now, some of these statements are clearly factual and a couple are suppositions. The one about additional foreclosures and price declines coming as unemployment rises is the most speculative and would require the economy to have a second dip. Of course this is possible but based on most current indicators just doesn't seem very likely in the near term.
The fact that prices are down from last year is true but not sure what it matters. If prices rise at a very slow pace from here, by next June, we will see prices being higher year over year. It is both unlikely and probably undesirable for prices to escalate at too high a pace. We just got out of a housing bubble and once prices bottom, as they very well may have, we simply want to see them increase in line with the economy as a whole.
Yes the Government housing stimulus is likely have an impact and the question has to be will buying continue after it ends. That is a fact that won't be answered until it ends but the hope is that by then, the economy will be improving enough on its own. It is also very possible that the incentive may be extended or even revised to include all buyers. Time will tell.
If speculators are buying the houses with the hope of turning a quick profit or turning them into rentals with the hope of long term capital appreciation, I'm not sure why this is a bad thing. We certainly wouldn't want to see a speculative frenzy leading to another bubble but investing i housing, flipping houses or renting out units seems like a sign of recovery rather than anything else.
Yes, a lot of the houses being sold are foreclosures. Makes sense since they are the lowest houses out there and why wouldn't they sell first? Once again, we clearly want to get these houses back into the marketplace. What would be the alternative to selling them?
The fact that people are not putting houses up for sale because they are hoping for prices to rise is another fact that may very well be true and may act as a damper on prices since they will put houses up for sale as prices rise increasing supply. However, this will only happen if prices rise and will help avoid potential bubble conditions. Not a terrible thing.
Of course for those folks who are convinced, or possibly just desirous of a true economic catastrophe, nothing will convince them things are getting better. For most of us the fact that housing prices were stable month over month is good news, although we need a few more months of increases to see a true trend.
Monday, July 27, 2009
Smaller economy
There was a good documentary on CNBC last night called "House of Cards" that spelled out how the flow of credit led to the housing bubble. Of course the biggest issue in the whole process was the simple fact that the frenzy allowed people who normally would never qualify for a mortgage to get extremely large ones and encouraged people to pursue excessive life styles using the growth in housing prices.
Since the whole system was dependant on home prices rising ad infinitum, when they did stop going up, the bubble crashed. We have been seeing the aftermath of that for the last couple of years.
Now as far as housing prices go, the correction in prices is either over, or almost over in most parts of the country. This is obviously debatable, but one of the things driving average prices down is the re-establishment of the spread between the high end of the market and the low end. The initial crisis impacted to low end of the market dramatically. Now of course, in some states such as California, the low end of the market has valuations that are higher than the high end of the market elsewhere, but still, the first houses impacted were generally the low end of the market. This crash in prices increased the spread between entry level housing and higher levels of the market.
Now even as the real estate bottoms have started to stabilize, we are going to have a period where the higher end of the market will have to adjust down. I don't expect this to be as catastrophic as the price drops in the low end, but it will continue to feed the impression that housing is in trouble. Many of these houses are owned by people who don't necessarily have to sell. Also, in many cases they still have significant equity in these houses, so even when they sell at values lower than the peak, they are still ahead of the original basis.
What continues to be the most problematic aspect of the housing problem is the fact that so much of our economy was based on people spending paper wealth. I've shown statistics previously where the amount of discretionary income available has not changed dramatically. Now even if a larger percentage of this amount was diverted into savings, you would only have a small economic contraction. However, consumer spending in the bubble years was tremendously supplemented by housing wealth and that spending is simply not coming back anytime soon. That is why we need to adjust to an economy that has to be viable at about 85% of the prior levels.
This will lead to unemployment higher than it used to be, but not necessarily at an unsustainable level. We do have a chance to help the economy dramatically by investing heavily in the renewable energy area.
Since the whole system was dependant on home prices rising ad infinitum, when they did stop going up, the bubble crashed. We have been seeing the aftermath of that for the last couple of years.
Now as far as housing prices go, the correction in prices is either over, or almost over in most parts of the country. This is obviously debatable, but one of the things driving average prices down is the re-establishment of the spread between the high end of the market and the low end. The initial crisis impacted to low end of the market dramatically. Now of course, in some states such as California, the low end of the market has valuations that are higher than the high end of the market elsewhere, but still, the first houses impacted were generally the low end of the market. This crash in prices increased the spread between entry level housing and higher levels of the market.
Now even as the real estate bottoms have started to stabilize, we are going to have a period where the higher end of the market will have to adjust down. I don't expect this to be as catastrophic as the price drops in the low end, but it will continue to feed the impression that housing is in trouble. Many of these houses are owned by people who don't necessarily have to sell. Also, in many cases they still have significant equity in these houses, so even when they sell at values lower than the peak, they are still ahead of the original basis.
What continues to be the most problematic aspect of the housing problem is the fact that so much of our economy was based on people spending paper wealth. I've shown statistics previously where the amount of discretionary income available has not changed dramatically. Now even if a larger percentage of this amount was diverted into savings, you would only have a small economic contraction. However, consumer spending in the bubble years was tremendously supplemented by housing wealth and that spending is simply not coming back anytime soon. That is why we need to adjust to an economy that has to be viable at about 85% of the prior levels.
This will lead to unemployment higher than it used to be, but not necessarily at an unsustainable level. We do have a chance to help the economy dramatically by investing heavily in the renewable energy area.
Saturday, July 25, 2009
Recovery scenario
The stock markets had a very bullish week in the second week of earnings season and even on a day where there was some disappointing earning from Microsoft and American Express it held on to its levels.
Right now the numbers seem to indicate that there is still significant money that is likely to enter the market once general acceptance of economic recovery becomes more assured. There are clearly signs that things are starting to get better. Starting to get better is not the same as being better and often people seem to miss that distinction. If you have a patient who is running a high fever as a result of a debilitating illness and the fever goes down, that is a positive sign. He may still be running a small fever and his system may take weeks to fully recover, but the improvement usually means that the worst is over.
Yes, there are potentials for relapse but if the illness is a common one with a known course of treatment, a relapse becomes much less likely.
The economy has been through economic downturns before. This was a severe one and I know there are those out are convinced we will still revert to economic collapse, but, earning season should really put those expectations to rest.
Since I started writing down my thoughts here, I have argued that the size of the American economy may have undergone a long term adjustment. I hear this being called the new normal on some shows and I think the faster we accept it the better off we will be.
A good example may very well be seen in the Automobile market. Auto makers need to scale production for sales that are 33% less than they used to be. There is no reason an industry that sells 9-10 million cars a year can't be profitable, unless of course you are geared up to sell 15 million. If demand exceeds supply, they need to be careful about expansion and avoid the overzealous pursuit of profits and market share that almost ruined them last time.
Similarly, many other industries also need to assure that profitability can be achieved at lower revenue levels. The recent earnings season shows that has happened for the most part. Profitability is what is important for success not market share.
Having established that most companies can be profitable at lower levels, growth from those levels will result in significant margin improvements. However, if the economy is smaller than it was it will result in a reduction in jobs unless there is a new growth industry. I believe renewable energy can be that growth industry. However, even if we fail to create as many jobs as we have lost is that a catastrophe?
For years economists have been predicting a labor shortage as the baby boomer generation leave the workforce. Yes, that trend has only just started and because of the recent economic problems, the trend may have been slowed, but, inevitably they will leave the workforce.
So, how problematic is the loss of jobs? I think there is plenty of evidence that unmeasured economic activity (people working off the books or engaged in illicit activities) is picking up some of that slack. With equities regaining value and if we can get some increased values in housing, the baby boomers who saw their retirement nest eggs wiped out, may find a lot of the value returned. If they then start to retire in large numbers, we may actually have a significant labor shortage that will need to be supplemented by immigration or exportation of jobs.
So for those hoping for Armageddon, I think you have a problem.
Right now the numbers seem to indicate that there is still significant money that is likely to enter the market once general acceptance of economic recovery becomes more assured. There are clearly signs that things are starting to get better. Starting to get better is not the same as being better and often people seem to miss that distinction. If you have a patient who is running a high fever as a result of a debilitating illness and the fever goes down, that is a positive sign. He may still be running a small fever and his system may take weeks to fully recover, but the improvement usually means that the worst is over.
Yes, there are potentials for relapse but if the illness is a common one with a known course of treatment, a relapse becomes much less likely.
The economy has been through economic downturns before. This was a severe one and I know there are those out are convinced we will still revert to economic collapse, but, earning season should really put those expectations to rest.
Since I started writing down my thoughts here, I have argued that the size of the American economy may have undergone a long term adjustment. I hear this being called the new normal on some shows and I think the faster we accept it the better off we will be.
A good example may very well be seen in the Automobile market. Auto makers need to scale production for sales that are 33% less than they used to be. There is no reason an industry that sells 9-10 million cars a year can't be profitable, unless of course you are geared up to sell 15 million. If demand exceeds supply, they need to be careful about expansion and avoid the overzealous pursuit of profits and market share that almost ruined them last time.
Similarly, many other industries also need to assure that profitability can be achieved at lower revenue levels. The recent earnings season shows that has happened for the most part. Profitability is what is important for success not market share.
Having established that most companies can be profitable at lower levels, growth from those levels will result in significant margin improvements. However, if the economy is smaller than it was it will result in a reduction in jobs unless there is a new growth industry. I believe renewable energy can be that growth industry. However, even if we fail to create as many jobs as we have lost is that a catastrophe?
For years economists have been predicting a labor shortage as the baby boomer generation leave the workforce. Yes, that trend has only just started and because of the recent economic problems, the trend may have been slowed, but, inevitably they will leave the workforce.
So, how problematic is the loss of jobs? I think there is plenty of evidence that unmeasured economic activity (people working off the books or engaged in illicit activities) is picking up some of that slack. With equities regaining value and if we can get some increased values in housing, the baby boomers who saw their retirement nest eggs wiped out, may find a lot of the value returned. If they then start to retire in large numbers, we may actually have a significant labor shortage that will need to be supplemented by immigration or exportation of jobs.
So for those hoping for Armageddon, I think you have a problem.
Monday, July 20, 2009
Recovery?
We are starting to hit the period of time when the stimulus package is going to start having a bigger impact. Whether the stimulus was properly targeted or implemented speedily enough, there will be many projects kicking off now that will show some improvement in employment.
Also, with GM and Chrysler out of bankruptcy and some increased demand in the auto sector, we can expect to see a small bounce as the auto companies and their suppliers start working on the fall lines.
Also, as many of the companies have cut to the bone in order to preserve profits, I would think that the production for the Christmas season has to create some jobs in manufacturing as well.
We also see a bit of a rush to get houses started so they qualify for Government credits and we should see a small uptick in construction employment.
All of this indicates that we are either at the top or very near the top of our unemployment curve.
Now many analysts are predicting unemployment to continue to grow into early next year, and if retailer's overstock for Christmas we may have a subsequent problem, but assuming they gear u for a modest but profitable season we should start to see the stability in employment that we need to renew GDP growth.
Housing is a tougher problem, but I do think that a larger number of people who have moved in with parents and/or relatives and have been saving, will with an improved employment outlook, use that savings to invest in some of the most affordable housing they will probably see in their lifetimes.
Starting to smell more and more like recovery.
Also, with GM and Chrysler out of bankruptcy and some increased demand in the auto sector, we can expect to see a small bounce as the auto companies and their suppliers start working on the fall lines.
Also, as many of the companies have cut to the bone in order to preserve profits, I would think that the production for the Christmas season has to create some jobs in manufacturing as well.
We also see a bit of a rush to get houses started so they qualify for Government credits and we should see a small uptick in construction employment.
All of this indicates that we are either at the top or very near the top of our unemployment curve.
Now many analysts are predicting unemployment to continue to grow into early next year, and if retailer's overstock for Christmas we may have a subsequent problem, but assuming they gear u for a modest but profitable season we should start to see the stability in employment that we need to renew GDP growth.
Housing is a tougher problem, but I do think that a larger number of people who have moved in with parents and/or relatives and have been saving, will with an improved employment outlook, use that savings to invest in some of the most affordable housing they will probably see in their lifetimes.
Starting to smell more and more like recovery.
Monday, July 6, 2009
Demographics
If you think about the future, and I only mean the fairly close future, there are a number of things that are going to happen because of Demographics. The "Baby Boomer" generation has been aging and is reaching retirement age. Now, the sad fact is many of them counted on a retirement based on the money in their 401Ks and homes. A lot of this money has vanished. Real estate especially will take years to return to values it attained in 2007. The stock market is also unlikely to get to levels from that year for a while.
This generation, which has to a large extent been the primary engine in the economy for the last 60 years is now faced with a situation forcing them to try to save. Further, as the grim reality of their situation has sunk in, some will have to work longer, assuming there are jobs for them.
They are going to put demands on health care, and social services that were easily forecast but which are going to be worse as their own resources have diminished. Many of them have seen any traditional pensions they may have expected endangered, companies that at one time promised life time health benefits have either gone out of business or are scaling back the benefits.
The one strength this group still has is tremendous political clout. While to a large extent many of them spent much of their lives living independently, as they find themselves unable to provide for themselves economically, they are likely to demand that the Government do something.
This probably means that budget deficits will continue to grow and the National Debt increase. There is no magic solution to this demographic issue. The other known problem is that the number of workers paying taxes to support this group as they retire and need services is proportionately smaller than it has been in our history. For the next few decades, unless we have a massive immigration of young people, the ratio of people above 60 to those under will set records. As long as we rely on an income tax to finance our social services, we will have a significant problem.
We may see a change in the American lifestyle, and we may be already seeing it, where generations return to living together to reduce expenses. That is one of the reasons that the housing stock in existence is probably excessive and will exceed demand for a good number of years.
They are also going to spend less money. First, they have less. Second, as they age, some things they spent money on will become insignificant to them. Of course they will still buy consumables but some of the industries that relied on them wanting things newer and better will suffer. If we see fewer households there will be less demand for major appliances, automobiles, lawn maintenance equipment and any other items that are discretionary. Spending will not disappear, but demand will decrease and profit margins will be squeezed.
The economy will adjust, but it will become more fundamental. If we do some smart things, such as reform the tax system, increase immigration, and reduce dependence on foreign oil, we can mitigate much of this.
However, the amount of reduced demand that the demographics predict is probably going to mitigate any inflationary pressures for years to come.
This generation, which has to a large extent been the primary engine in the economy for the last 60 years is now faced with a situation forcing them to try to save. Further, as the grim reality of their situation has sunk in, some will have to work longer, assuming there are jobs for them.
They are going to put demands on health care, and social services that were easily forecast but which are going to be worse as their own resources have diminished. Many of them have seen any traditional pensions they may have expected endangered, companies that at one time promised life time health benefits have either gone out of business or are scaling back the benefits.
The one strength this group still has is tremendous political clout. While to a large extent many of them spent much of their lives living independently, as they find themselves unable to provide for themselves economically, they are likely to demand that the Government do something.
This probably means that budget deficits will continue to grow and the National Debt increase. There is no magic solution to this demographic issue. The other known problem is that the number of workers paying taxes to support this group as they retire and need services is proportionately smaller than it has been in our history. For the next few decades, unless we have a massive immigration of young people, the ratio of people above 60 to those under will set records. As long as we rely on an income tax to finance our social services, we will have a significant problem.
We may see a change in the American lifestyle, and we may be already seeing it, where generations return to living together to reduce expenses. That is one of the reasons that the housing stock in existence is probably excessive and will exceed demand for a good number of years.
They are also going to spend less money. First, they have less. Second, as they age, some things they spent money on will become insignificant to them. Of course they will still buy consumables but some of the industries that relied on them wanting things newer and better will suffer. If we see fewer households there will be less demand for major appliances, automobiles, lawn maintenance equipment and any other items that are discretionary. Spending will not disappear, but demand will decrease and profit margins will be squeezed.
The economy will adjust, but it will become more fundamental. If we do some smart things, such as reform the tax system, increase immigration, and reduce dependence on foreign oil, we can mitigate much of this.
However, the amount of reduced demand that the demographics predict is probably going to mitigate any inflationary pressures for years to come.
Sunday, June 28, 2009
Recovery vs Rebound
We all are aware that the economy has had a massive correction in which we had tremendous asset revaluations in housing and the stock market. There are sign that the bottoms have been reached and that we are looking at the end of the recession and the start of the recovery. However, some who hear this act as if the economy was about to rebound back to its former levels. This is extremely unlikely to happen and what we should expect is fairly slow growth.
The primary reason for this is that housing values have shrunk so much. I read a number of economic papers this weekend arguing over whether housing wealth impacted consumer spending. One study said it did not, but briefly acknowledged that while wealth in housing was somewhat locked, it was possible that there was a secondary effect related to borrowing against that wealth. With all due respect to the authors of that study, no one goes out and spends their houses. Spending has been directly related to growth in apparent wealth related to either refinancing, HELOCs or trading up. This money has fueled the consumer driven economy and unless housing prices were to rebound, it is not coming back.
There is another impact, but possibly one that will settle itself down. Some of the areas heavily impacted by the housing crisis were areas in Florida and Arizona, as well as California and Nevada. Now, as far as Florida and Arizona go, there has been a long range trend where retirees sold homes in the north and purchased homes and/or condos in those areas. This has slowed down tremendously because retirement rates are down and people feel that the prices for their northern homes are too low for them to sell. However, clearly the relative value of homes in much of the North has actually increased in comparison to homes in Florida and Arizona and when this gets marketed properly, assuming there are buyers for the Northern homes, we may see a resumption of that trend (retirees fueling home buying in Florida and Arizona).
Let me return to the main point I was making. Real estate values are widely depressed, but as always it has to do with location. However, the wealth lost is simply not coming back quickly. Now, for those who didn't actually lose their homes, this may be worse than it is for those who did.
Suppose you have a house that has been finance at the 80% level in an area that has seen prices drop by about 20%. Well at this point you have no equity but you are not underwater. Even if you go slightly underwater or maintain a small amount of equity, you cannot refinance and it will probably take a rebound in prices to a level above previous ones to be able to "mine" your home for spending or retirement money. Since this is probably unlikely for a number of years, the only available spending is discretionary earnings and other forms of credit. I could develop a mathematical formula for this, but trust me, it is a lot less available for spending.
Now suppose you lost a house or never had one. You, assuming you can get credit and a down payment have the opportunity to buy the same or similar house for a lot less and start off with say 20% in equity. Even a modest increase in price may provide you with a source for home equity loans or refinancing. However, it is not going to match prior spending levels when you consider the slow increase in housing prices and those who have lost their equity positions.
So, if we have lost x amount of housing wealth (equity) and therefore have lost the spending from loans associated with that amount the only way to replace it is by restoring that wealth. Well, I can find no scenario where that is going to happen quickly.
So, our consumer driven economy has no potential to "rebound". It will start to recover meaning that having reached a level of GDP significantly lower than it was, we will see it increase slightly. This growth will require adjustments to a reduced level of economic activity until we fix the energy sector and grow our renewable energy industry.
The primary reason for this is that housing values have shrunk so much. I read a number of economic papers this weekend arguing over whether housing wealth impacted consumer spending. One study said it did not, but briefly acknowledged that while wealth in housing was somewhat locked, it was possible that there was a secondary effect related to borrowing against that wealth. With all due respect to the authors of that study, no one goes out and spends their houses. Spending has been directly related to growth in apparent wealth related to either refinancing, HELOCs or trading up. This money has fueled the consumer driven economy and unless housing prices were to rebound, it is not coming back.
There is another impact, but possibly one that will settle itself down. Some of the areas heavily impacted by the housing crisis were areas in Florida and Arizona, as well as California and Nevada. Now, as far as Florida and Arizona go, there has been a long range trend where retirees sold homes in the north and purchased homes and/or condos in those areas. This has slowed down tremendously because retirement rates are down and people feel that the prices for their northern homes are too low for them to sell. However, clearly the relative value of homes in much of the North has actually increased in comparison to homes in Florida and Arizona and when this gets marketed properly, assuming there are buyers for the Northern homes, we may see a resumption of that trend (retirees fueling home buying in Florida and Arizona).
Let me return to the main point I was making. Real estate values are widely depressed, but as always it has to do with location. However, the wealth lost is simply not coming back quickly. Now, for those who didn't actually lose their homes, this may be worse than it is for those who did.
Suppose you have a house that has been finance at the 80% level in an area that has seen prices drop by about 20%. Well at this point you have no equity but you are not underwater. Even if you go slightly underwater or maintain a small amount of equity, you cannot refinance and it will probably take a rebound in prices to a level above previous ones to be able to "mine" your home for spending or retirement money. Since this is probably unlikely for a number of years, the only available spending is discretionary earnings and other forms of credit. I could develop a mathematical formula for this, but trust me, it is a lot less available for spending.
Now suppose you lost a house or never had one. You, assuming you can get credit and a down payment have the opportunity to buy the same or similar house for a lot less and start off with say 20% in equity. Even a modest increase in price may provide you with a source for home equity loans or refinancing. However, it is not going to match prior spending levels when you consider the slow increase in housing prices and those who have lost their equity positions.
So, if we have lost x amount of housing wealth (equity) and therefore have lost the spending from loans associated with that amount the only way to replace it is by restoring that wealth. Well, I can find no scenario where that is going to happen quickly.
So, our consumer driven economy has no potential to "rebound". It will start to recover meaning that having reached a level of GDP significantly lower than it was, we will see it increase slightly. This growth will require adjustments to a reduced level of economic activity until we fix the energy sector and grow our renewable energy industry.
Subscribe to:
Posts (Atom)