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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (87743)	8/31/2007 2:53:06 PM
From: SouthFloridaGuy	Read Replies (1) \| Respond to of 306849

Grace, I'm sorry, but there are just too many known generalizations and too many matter of fact conclusions. <<House price appreciation hasn't created income,>> Yea, it created 1) debt and 2) temporary income for millions directly or indirectly involved. The debt remains, the income does not. <<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.>> I actually agree with this, though I wouldn't say the consequences for the US are nil. Sure if you owe $100 to the bank, you have a problem, if you owe a few trillion, it's the Asians' problem. But the adjustment from debtor to saver, while good is painful. Also the US financial community will be hurt. I know nobody gives a sh!t about me and my Porsche payments, but no doubt I'm a little worried (though for all you haters, I have plenty of assets that I rolled my bonuses into in flyover country as John Vosilia knows...I ain't dumb). <<During the last period of flat RE prices the economy boomed and incomes rose.>> C'mon, this is like no other period. No inflation and interest rates as low as they can go. The worst of all worlds for an asset dependent economy is NOMINAL price depreciation and that's exactly what you're getting. There will be no refinancing cycle this go-around and inflation is minimial if you believe the TIPS - which I do. <<People who have the cash flow or growing incomes to pay off that mortgage will be fine. >> Well duh. Let them eat cake! <<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.>> And none of this will be bad while it's occuring? Or is it spilled milk? I'm not following the points here. <<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).>> Once again, duh. Let us not forget the corporate credit froth, commercial real-estate froth, though while not bubbles are certainly stretched and will provide no net positives during the leverage unwind. Also, for the record, I rent a house. I have the capacity to buy a house - I certainly own stakes in many commercial properties in flyover land - but I was waiting for Wall St. to crack so I can get my house and pied a terre on blue light special.

To: GraceZ who wrote (87743)	8/31/2007 3:33:07 PM
From: Hawkmoon	Read Replies (2) \| Respond to of 306849

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). Grace.. that would be true if those homes were purchased outright, and not financed with debt. However, everytime debt is created, money is ALSO created. That's how money supply works. If you contract to purchase a $500K home and take out a loan to finance it with no money down, you've just created $500K in money supply, which then is transferred as material, wages, and profit to those people who built your home. And over the space of a 30year mortgage, you'll pay between 2-3 times the purchase price in interest (deductible of course), you've actually created even more than $500K in money supply, the majority of which goes to the banks, who use it to extend even MORE credit to other borrowers. Now even if the bank resells those loans to investors as CDOs, it is ALL dependent upon you continuing to pay that mortgage. If you default, then money is destroyed (normally the amount between the the mortgage value, and the price for which the home is resold in foreclosure. The same goes with bonds. If a company issues bonds, it creates money backed by the faith held by investors that the company will be able to pay it off over time. If that company defaults on those loans, money is destroyed. Hawk