patrick.net

I am not a realtor, just a patriotic American middle-class citizen with a wide international perspective, as I have lived in Asia and Europe for many years. I am one of the few people that believes that housing in the United States is ridiculously undervalued, and always has been, when considering size, quality, features, surrounding infrastructure, median income, etc. I believe that the collapse in housing prices over the past few years has been the most major factor in destroying the American economy, and fear that our great country is stuck in a death spiral. I honestly believe that the housing collapse has hurt the middle class the most. I present these myth busters below purely from an honest discussion and debate perspective, and hope to wake up the masses to the reality of housing within and outside the United States.

Myth #1 : Home prices flat or falling is good for future generations

When the current generation is getting utterly destroyed and losing its savings and wealth because of stagnating or falling prices, they cut back on all spending. This results in the retailers and service providers not making enough sales, which then leads to job cuts and low wages, which then leads to further cutting back in spending, and this cycle goes on with vastly decreased hiring and much lower wages. With competition between the current generation and the next younger generation for the few available jobs, lower wages etc, how exactly is this better for future generations? New college graduates are finding it extremely difficult to get jobs. See these links:

http://www.nytimes.com/2011/05/19/business/economy/19grads.html?_r=1&ref=business

http://www.cnn.com/2011/OPINION/05/19/vanhorn.zukin.jobs/index.html?hpt=C1

Myth #2 : Home prices rising is bad for the economy

There is ample proof around the world to prove this to be a complete and baseless myth. Countries with the most absurd housing price appreciation and bubbles in the past 30 years like India and China, are flourishing with high GDP growth, wage increases etc. Countries where home prices have stagnated or fallen over the past 30 years like in the USA and Japan have collapsed. Enough said...

Myth #3 : There is low inflation in the USA

Food and energy prices have gone up in the past few years considerably. The dollar has lost value against almost all foreign currencies, so assets should be priced higher. Gold is a far better indicator of inflation/falling currency values, and gold has gone up 6 times in the past 10 years, while home prices are now at or below 2000 levels. Even per Case/Shiller, home prices need to at least keep up with inflation. By faking extremely low inflation numbers, the government and economists with ulterior motives have claimed housing to have risen more than inflation. The truth is that house prices have vastly underperformed inflation, and housing in the USA is vastly undervalued compared to the rest of the world.

Myth #4 : There was a huge home price bubble in the USA

See Myth #3 above. Bubbles are relative. The most absurd housing bubbles are in India and China, and not in the developed world. The median single family home price in India's and China's metros is currently over 1 million USD, though the local median annual income in those metros is less than 5000 USD, so it is a median home to median income multiple of 200 in these Asian metros, compared to less than 8 in the United States "bubble" metros even at the peak of the housing price in 2006. Home prices have appreciated about one thousand times (100000.00%) in the past 30 years in India and China, compared to about 3 times in the United States during the same period. Also, these million dollar homes in India and China are extremely small, with no luxury features, and utter squalor all around. When comparing, size, quality, features, surrounding infrastructure and beauty, homes in the USA are unbelievable and absurdly cheap compared to every other country in the world.

Myth #5 : Home price appreciation increases inequality

This is true only in the developing world where only a small percent of the population owns homes. In developed countries where the majority owns homes, the middle class benefits quite a bit from rising home prices. What is happening in the USA now is that the middle class that owned most of the homes is hurting extremely badly from falling home prices and middle class families are getting out of home ownership, while the rich are picking up foreclosed homes at unbelievably low prices and renting them out to the already suffering middle class. The intentional home price collapse in the United States is a conspiracy to transfer massive wealth from the American middle class to the ultra-rich and to buyers from India and China, who can easily buy dozens of luxury homes in America if they sell their small apartments in their Asian metros.

Myth #6 : Home prices collapsed in the USA because they had become too unaffordable

See above myth busters. Homes prices never became "unaffordable" in the USA, especially compared to the rest of the world. What actually happened was that low-income people were allowed to buy dream homes that they could never afford in the first place, thanks to lax lending from banks. As Warren Buffet said recently, it should not be America's social goal to get every family into their dream home, but into a home that they can afford. Housing, especially luxury housing, is not an entitlement, and to expect that palaces of gold should be easily affordable to even the lowest income families is just self-destructive socialistic agenda.

Myth #7 : Median home prices should be at most 3 times the median income to be affordable

This myth/expectation is just plain laughable because the advocates of this multiple never define what the median home is. Should we not divide this at least into apartments, low end homes (1000 sqft or less), middle tier homes (1000-2000 sqft), high end homes (2000 sqft+), and super luxury homes first before we talk about what should be affordable? Then, if the median income cannot easily buy even the apartment or low-end home, you can state the case of unaffordability. Also, how are mortgage rates not part of the calculation of this affordability multiple? Why should this multiple remain "3" whether the mortgage rate is 20% like it was in the 1970s or 4% like it is now?

Myth #8 : Jobs recovery will lead to a housing recovery

Based on all the myth busters detailed above, it is actually the other way around. Jobs follow only when housing is strong and people feel the wealth effect. So long as housing prices keep falling or stagnate, there will never be a true jobs recovery in America.

Myth #9 : Renting is cheaper than buying in the USA

While this may be true in a few places, in most American cities, it is now far cheaper to buy a home than to rent it. Low prices and very low mortgage rates have led to this situation, which is a boon for rich landlords. Rents are also going up in most cities as foreclosed families begin to rent. Beware the bloggers who want median home prices to fall even more from their currently already extremely cheap levels. The goal of these bloggers is to buy those at rock-bottom prices and become very profitable landlords.

Myth #10 : Homes should not be considered investments but merely shelter

State this to any of the billions of people outside the United States and they will kill themselves laughing. Homes have and continue to be the biggest purchase made by most families in the world, throughout history. They are not fools to make it their biggest purchase if it is going to cause them to lose their hard earned wealth.

I know a lot of bloggers on this site will come out attacking my myth busters above. I welcome a civil debate, but please stay away from the needless name-calling, especially if you have nothing to contribute.

#housing