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The Loss of Housing "Wealth"


By Patrick   Follow   Sun, 18 Nov 2012, 10:33am PST   1,098 views   13 comments
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http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-loss-of-housing-wealth

Mike Konczal raises many important points about recovery from the Great Recession, but, in assessing the length and duration of the downturn, he places undue weight on underwater homeowners. Following on the work of Atif Mian and Amir Sufi, Konczal argues that the $1.1 trillion debt of 15 million underwater homeowners is the main factor holding back the recovery. If these homeowners could somehow be brought back above water, they would increase their spending and normal economic growth would resume. But some simple calculations suggest that this explanation is implausible. First, it is important to remember that one persons debt...

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Buster   Sun, 18 Nov 2012, 12:13pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

Darrell In Phoenix says

Patrick says

The Loss of Housing "Wealth"

It was never there in the first place.

Not in Phoenix anyways.

Bellingham Bill   Sun, 18 Nov 2012, 12:36pm PST   Share   Quote   Permalink   Like   Dislike     Comment 2

towards the end:

"And the analysis of the recession is an important corrective to the Reinhart-Rogoff twilight zone orthodoxy that a financial crisis somehow condemns us to a decade of stagnation"

I like Dean Baker, generally, but he is another person who refuses to "Get It".

The 2002-2007 period was flim-flam financed by suicide lending.

When all that blew up after the loans went bad, so did the bullshit Bush economy we had going.

http://research.stlouisfed.org/fred2/series/CMDEBT

Not 1% of this country can read that graph. Hell, not 0.1%.

Bellingham Bill   Sun, 18 Nov 2012, 12:39pm PST   Share   Quote   Permalink   Like   Dislike     Comment 3

The only way we can lose wealth is acts of war or God.

the BS housing bubble was wealth transfer, and also malinvestment, but that too was transfer+waste resulting in bad assets, both paper and the crap that was (over-)built or built in the wrong place.

mike2   Mon, 19 Nov 2012, 11:29pm PST   Share   Quote   Permalink   Like   Dislike     Comment 4

So if there was NEVER wealth in the housing market then there was never wealth in any kind of market? Stocks, equities, Retirement accounts etc. OF course there was wealth in the housing market..Look how many people got wealthy at that time. It is all about timing and getting in at the right time and getting out at the right time. Like ANY investment same thing applies. Right now again...there are people getting very Wealthy on RE again. Buying low, selling high. It id Not Rocket science. Be smart when you buy. My Dad always told me "you make your money going into the deal" more than going out of it. In other words make a prudent, timeley investment.

RentingForHalfTheCost   Mon, 19 Nov 2012, 11:35pm PST   Share   Quote   Permalink   Like   Dislike     Comment 5

Bellingham Bill says

http://research.stlouisfed.org/fred2/series/CMDEBT

Not 1% of this country can read that graph. Hell, not 0.1%.

You are being too generous.

RentingForHalfTheCost   Mon, 19 Nov 2012, 11:39pm PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 6

mike2 says

Look how many people got wealthy at that time.

You got wealthy if you sold in the middle of the ponzi scheme. That is how it works. The people left with the oversized mortgage on an undersized home that no one wants, lose their shirt. There is no such thing as wealth in housing. There is making money off the greed of banks and realtors. However, for every buck extracted from the system, there is a buck taking from somewhere (taxpayers, corporate taxes, investment taxes, etc.). Remember, housing tracks salaries. It is not an investment.

dodgerfanjohn   Tue, 20 Nov 2012, 12:19am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 7

mike2 says

It id Not Rocket science.

Clearly.

Oxygen   Tue, 20 Nov 2012, 12:29am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 8

The wealth was never there. We operate under fractional reserve banking, so all that wealth is created out of thin air anyways.

Patrick   Tue, 20 Nov 2012, 12:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 9

mike2 says

So if there was NEVER wealth in the housing market then there was never wealth in any kind of market? Stocks, equities, Retirement accounts etc. OF course there was wealth in the housing market..

The real point should be that the wealth in the housing market did not change.

The amount of land remained the same. The number of new houses built was not very significant compared to the existing housing stock. And most important: the total labor market did not expand.

Everyone thought that somehow they could magically extract value just by swapping houses with each other, without anyone actually producing anything new.

Bellingham Bill   Tue, 20 Nov 2012, 1:06am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

mike2 says

OF course there was wealth in the housing market..Look how many people got wealthy at that time.

It was the pass-through wealth of Vegas. Money was being transferred.

Oxygen says

We operate under fractional reserve banking, so all that wealth is created out of thin air anyways.

"Fractional reserve banking" just means banks can lend out customer deposits, so the same dollar can exist in two (or ten) places at once as savings becomes loans over and over.

But money is not wealth. People made (and lost) a lot of money 2002-2008, but the wealth stock of the nation was not increased in that proportion.

http://research.stlouisfed.org/fred2/series/SPCS10RSA

The low interest rates of 2002-2004 and then the suicide lending innovations of 2004-2007 (negative am, liar loans, qualifying borrowers on the teaser rates) goosed up prices more.

What a wasted decade. People still don't understand that it may have actually killed us as a going concern.

To put things back together is going to require massive clawbacks and restructuring.

I think this nation is getting as dysfunctional as the Soviet Union ca. 1980.

http://research.stlouisfed.org/fred2/series/TCMDODNS

Bellingham Bill   Tue, 20 Nov 2012, 1:13am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

Patrick says

And most important: the total labor market did not expand.

http://research.stlouisfed.org/fred2/graph/?g=cZ1

actually it did, but the problem was it was the flim-flam housing market and equity pull-outs that was driving that growth.

The boom was built on housing market bullshit -- households borrowing over a trillion per year -- and when the BS failed, so went the boom:

http://research.stlouisfed.org/fred2/graph/?g=cZ2

same graph with annual consumer debt take-on in red (right axis)

Note that after the mortgage money machine stopped, so went employment.

swebb   Tue, 20 Nov 2012, 1:27am PST   Share   Quote   Permalink   Like   Dislike     Comment 12

Bellingham Bill says

http://research.stlouisfed.org/fred2/series/CMDEBT

Not 1% of this country can read that graph. Hell, not 0.1%.

I'm not sure I can read the graph the way you want me to, but my guess is that I'm supposed to notice (and be alarmed by) the rapid increase during the first decade of the century. That in itself looks troubling, but when you overlay GDP, it doesn't look nearly so out of whack.

http://research.stlouisfed.org/fred2/graph/?g=cZ3

The debt growth turned upward around 2000, while GDP flattened..if that had continued, I think things would get a lot worse before they got better...but since 2009 or so things look a lot better in terms of household debt vs GDP. What am I missing?

Bellingham Bill   Tue, 20 Nov 2012, 1:44am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 13

swebb says

but since 2009 or so things look a lot better in terms of household debt vs GDP. What am I missing?

http://research.stlouisfed.org/fred2/graph/?g=cZ6

blue is YOY consumer debt take-on.

red is YOY government debt take-on.

showing that we systematically shifted over from new household debt to government debt in 2008.

The net effect has been to maintain the systemic debt leverage:

http://research.stlouisfed.org/fred2/graph/?g=cZ7

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