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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: SouthFloridaGuy who wrote (87478)8/31/2007 8:53:37 AM
From: GraceZRead Replies (2) of 306849
 
It's neither smart nor stupid. People took money out and put that money and a lot more back into their houses primarily because they see/saw their houses as a store of wealth, a place where they can retrieve that money later. Until recently they've been largely correct. But that wasn't my point, to confer judgement on their actions.

My only point was that the economy hasn't been held up by this vast flow of money into housing, that housing has sucked up money (you'd know that if you owned a house).

House price appreciation hasn't created income, it has sucked it up big time as people felt no amount of money was too much to put into their houses. The money flow has been into housing, not out. If the flow was negative, then the stock of housing would be deteriorating. If anything that money flow into housing helped pump up the Chinese economy, not the US. Stopping the flow into housing has a lot less consequence for the US economy than most think, at least beyond those in the housing industry itself like the home builders and home improvement industry. During the last period of flat RE prices the economy boomed and incomes rose.

As for the debt remaining, where do you think you are, Japan? A place where people commit suicide when they default on their debts and children pay off their parents debt? People who have the cash flow or growing incomes to pay off that mortgage will be fine. Because of the exponential curve in which interest is charged equity builds up at a higher rate in a low interest rate environment (I mean the equity you get from paying down the mortgage). Those without sufficient income to pay their debts will default, companies and individuals who bought that debt will lose. Bad debt gets cleansed in this country.

In the US if people took on more than they can pay, they will default, the debt goes to debt heaven (notice I didn't say money heaven because the money created is still out there).
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