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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: UncleBigs who wrote (48594)1/3/2006 7:06:22 PM
From: GraceZ  Read Replies (2) of 110194
 
Is a house productive stock?

A house is a consumption, it doesn't add to the productive stock of the country but is a consumption that one consumes slowly. A house can last several centuries if well maintained and it also has a land component which isn't consumed (while New Orleans will test that assumption) at all. The value (as well as the price) of land rises naturally as the general wealth of the surrounding society rises. Most American families will pass on the value of their real estate to their descendants. Some will, of course, consume it with their final expenses, but the majority will pass on the value.

Many will use their house as collateral to borrow or draw down equity in order to buy productive assets once they are convinced that they can get a better return from putting the money in productive assets than RE investments. RE almost always rises during periods of low interest rates (low interest rates occur in periods of low returns on capital). People choose the lower return of RE because it offers superior security of the asset than productive assets.

For these reasons, Americans tend to look at their houses as a form of saving....just as many here tend to look at gold as a form of saving. Gold is no more productive than a house (although more fungible), but few would argue against it's use as a means to save.

America is gutting is productive capital and incurring debt on worthless consumptive items.

How much have the productive assets of the US declined, over what period and what measurement are you using for that calculation? All production is for consumption....eventually. The trick to savings is to more than replace the value of what you consume in a given year. I assume you are arguing that Americans aren't producing what they consume and I just wonder how you came to that conclusion, what did you use for data?

It would be difficult to impossible to consume the value of what has been put into housing in any given year within that year. Americans drew down an enormous amount of equity in the last five years and they put a figure approximately 60% above that amount back into improvements and additions. I'd guess a large amount of that was deferred maintenance from the preceding five years when RE was flat and most saving got drawn into the huge boom in capital spending that occurred in the late 1990s. I'm guessing you already forgot about that period.
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