The Housing Market will not save your butt

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.


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12 Responses to The Housing Market will not save your butt

  1. laytonian says:

    Something else, Charlie: homebuilding is about the only industry that can’t be outsourced to other countries, and there’s an entire developer-realtor-financial industry based on ever-rising prices.
    House-flipping became the national sport, fueled by shows like “Flip This House”.

    As you point out, no one delved into WHY that upside down family got into their situation.

    SO WHAT if you’re upside down. SO WHAT if your home “lose value”. Keep paying for it. Keep living in it. Things will stabilize.

    But I hope people now realize that a home is not an “investment” to be played with. It’s a box to keep your stuff in, that you take pride in. But you’re not going to impress many by taking out a big mortgage on a McMansion, and filling it with the giant furniture and requisite $29.99 gigantic clock.

  2. Bob Becker says:

    I remember we used to get all kinds of offers from the bank holding our mortgage, and from refinancing companies, asking if we wanted to “take money out of your house to finance…[long list of things, from expansions, renovations, decks, pools, vacation trips, etc.]” The phrase was always “take money out of your house” or “use the value of your home” or “draw on the equity in your home” but never “borrow more” or “increase your mortgage debt.” Struck me as curious at the time that they were offering to loan us more money, and so to increase our debt, but the slick little brochures and fliers never said that plainly. All those euphemisms for “debt.” They avoided that term like Republicans avoid the term “taxes” and retreat to euphemisms instead ["revenue enhancements."]

    Seems like calling a spade a spade is another of the lost arts.

    • Mark Sparkman says:

      Noam Chomsky would say “amen,” except he’s prolly not very religious (misspelling intentional). Spin “Department of War” into “Department of Defense” and you have not woven straw into gold. You’ve renamed the straw.

    • Owain says:

      Bob, you are usually better than this. Exactly which Republicans are using the the euphamistic ‘revenue enhancement’ instead of just saying increased taxes. Nice straw man.

      I’ll give you a counter example with a link. Here’s a transcript from the White House Blog of an Obama press conference from July.

      The word TAXES is never mentioned, but REVENUE is used 12 times. In the 3 paragraphs under “Shared Sacrifice” alone, REVENUE is used 8 times.

      Who knew that Obama was such a Republican?

  3. ctrentelman says:

    claiming that “jobs saved or created got us at unemployment of 9 percent” is interesting logic. Reminds me of someone who asked why, if the US and England, had access to Nazi secret codes through much of the war that the war was not a lot shorter, and the answer of course is that it was — without those codes it would have lasted longer than it did.

    So it is with “jobs saved or added.” It is a safe bet that without those jobs — construction workers, teachers, et al — whose employment was extended or expanded under TARP and the stimulus programs, that the rate of unemployment would be higher. How much higher? we may find out as those programs are phased out.

    As to “revenue enhancements,” my own memory is that the term came into most general use by the GOP under President Bush the Elder, whose “read my lips no new taxes” became something of a PR problem when “revenue enhancements” in the form of fees, taxes, and so on, became necessary.

    Reagan’s administration was most marked by calling catsup a vegetable, by his secy of agriculture, or something like that. But trying to figure out which politician spread BS first is sort of like holding your butt to a band saw and asking which tooth bit you first.

  4. Tom says:

    I can only agree with this article, the crisis is a result of too much borrowing and not paying the money back at some point. Simply put, those who thought their house prices would go on rising forever and that the government would bail them out if they couldn’t afford it all, were wrong.

    • Bob Becker says:

      Certainly true of many. But we have also to consider that there were many people who bought homes they could afford at the time and took out mortgages they could manage… only to lose their jobs after the crash. Most middle class people I know who have mortgages would not be able to pay them if they lost their jobs. So it’s not always the case that someone bought high, expecting a constant rise in value so he or should could flip the property at a profit in a few years, or that someone beggared himself with second mortgages and equity loans to finance spas, tennis courts, pools, sports cars, cruises and such like. Many folks bought prudently, paid regularly and then got laid off and could no longer carry what was a reasonable mortgage when they took it out.

      I’m a little leery of any single-cause explanation for the collapse. Yes, there were too many people who bought at the far edge of their income [became what my Dad called "house poor"], and who got in trouble when their income fell even slightly. And others who instead of paying down mortgages took out more and more debt to do home renovations, pay for vacations or boats, etc. But others simply lost their jobs and so lost their homes. And others had medical crises they could not pay for and became medical bankrupts and lost their houses that way. [About half of all US personal bankruptcies are, I think, medical bankruptcies.]

      Not everyone in foreclosure was imprudent. Not by a long shot and I’m afraid too many assume anyone in foreclosure must have been improvident and imprudent. Just not true, particularly of medical bankrupts, but of others as well.

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