Stories like this (click) frustrate the heck out of me and show why the current economic mailaise is, at least in part, due to bad news reporting.
It’s a New York Times story about the current economic situation, blaming it on the depressed housing market, but the story is badly considered and pooly written by a reporter who needs to learn to think critically. Sadly, in this era of internet news, where thought seems to be a secondary consideration, this story is typical.
You want to see some good reporting? Read the comments on the story.
The story uses as its example a family whose home has lost a lot of value since the top of the housing boom in 2007. This loss of equity, we are told, is why this family now faces hard straits.
However, nowhere does it say what that person actually paid for the house. If he bought it at the top of the boom, well, he got his house, he presumably paid what he could afford. I’m guessing, however, that he was one of many who assumed his house would continue to go up in value, generating free money from its equity, and that did not happen.
Tuff noogies, says I.
If he bought it earlier, before the boom, did he borrow against the equity at the top of the boom and THAT’S why he’s in trouble? It does not say.
Or is his real problem simply that his business is marble counter tops and nobody is buying luxury counter tops these days? Well, welcome to the wonderful world of struggling business models, says the newspaper reporter.
While the housing bust is a symptom of the current economic situation, it is not the cause. The cause was borrowing massive amounts of money to buy houses by people who had no income or assetts to qualify for those loans, a situation aided and abetted by mortgage companies that ignored all standard lending practices, and a federal oversight agency that ignored what was going on.
The real bottom line is that housing prices — which this story and too many people think are a lynchpin to the economy — will only rise, or stop dropping, when buyers can afford to buy them again in numbers sufficient to overcome an oversupply. That will only happen in a sustainable, safe, way if wages start rising. It will also only happen after the huge bubble of debt generated by the housing hyper-inflation is dealt with.
Wages have been stagnant since 2000 or even before. They’ve even gone down a bit. Until that changes, hopes for the housing market are completely wasted, and stories like this actually make things worse by making people think “yeah, if only we could get home prices up again!”
If home prices rise without wages also going up, the whole bubble mess will start again.