Skip to Content.
Sympa Menu

homestead - Re: [Homestead] Real estate market analysis, 7/24/08

homestead AT lists.ibiblio.org

Subject: Homestead mailing list

List archive

Chronological Thread  
  • From: Clansgian AT wmconnect.com
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Real estate market analysis, 7/24/08
  • Date: Tue, 29 Jul 2008 11:51:38 EDT


> >The economy has long been affected by, but has never been synonymous
> with real estate.

Perhaps not altogether and entirely, but in the past half decade it has been
the dominant recepticle of borrowed wealth. Many, yourself included, have
pointed out during the inflation of the bubble that the consumer economy was
being driven largely by the new wealth people suddenly discovered in the
increased
equity in their homes. The deflation of the bubble has caused a massive
economic change and been directly responsible for the insolvency of, what is
is so
far?, four banks with many more on the way.

>Until population reduces, there will be an increased need for housing.

I believe this can be effectively demonstrated to be not true. Right now we
are at a pinacle in human history of individual housing. We have the
expectation that every single person, every geezerly couple, every 18 yo can
have
their own individual domicile. And those domiciles are larger (sq ft per
person)
than ever in history and require a greater input of resources to maintain
(heating, cooling, water, etc) than ever before. This, says I, is the
function of
an overly consumptive, overly oil dependent society. And it is unsustainable.

During the recent housing run-up couples (just the two of them) bought 3000
sq ft houses not because they needed nor even wanted that cavernous a house,
but because they perceived the house as primarily an investment that would
increase in value so much that they could sell it and move into a much
smaller
place and pocket the difference. The result of this stragegy has been a vast
over
abundance of living space, not just individual houses, but the amount of
space available per person.

Then econonic harder times loom with increased energy costs making suburb and
exburb housing infeasible. The result is begining to show in a reversion to
living arrangements and a definition of 'family' that is much older than just
the past couple of decades.

Households are beginning to consolodate. This means that even with
increasing population the need for housing is likely to decrease.

We need only look at history to find that the importance of houing in the
economy can vary greatly. During the middle ages families spent about 70% of
their income (or effort) on food and only about 15% on housing. During the
industrial revolution the majority of the population (which was rather poor)
spent
more than 85% of their income on food and less than 10% on housing. At the
turn of the previous century the percent spent on food in "developed"
countries
was about 60% and even in the 1950's ad 1960's of my childhood it was 40% or
more.

Today Americans spend 9% of their income on food and that's because food
costs are on the rise. It has been as low as 6% within the last decade. And
housing? I know many families that spend more than 100% of their income on
housing. They are in a toxic mortgage where the unpaid interest is slapped
onto the
principal and if they were to be paying the full amount of the mortgage
payment, it would be more than 100% of their income.

Food and energy (transportation) costs are sharply on the rise. As more and
more of a person's or family's income goes to those things, the more they
must
consolodate their living arrangements. Therefore even as population rises
(for a while) the need for housing is likely to decrease. Maybe even
decrease
sharply.

>
> >And, contrary to those who like to play word games, the three most
> important elements of real estate value are still location, location,
>


Demonstrably not so. We were told during the inflation of the housing bubble
that the potential for a general crash of housing values was non-existent.
All housing value was locally determined. The most important element that
has
affected real estate value has been the real estate bubble. That is, two
more
or less identical houses in different locations have a difference in value of
$X. But both those houses are losing value faster now than the difference
betweent them. That is, location is not the largest factor in a difference
in
value, declining values is.

During the houing run up we were told by the cheerleaders and Pollyannas
that, well, yes, housing may drop two or three percent when the frenzy is
over.
But, we were told, an overall drop of something ridiculous like 10% just
wasn't
going to happen.

Yet this May (the latest month for which figures are available) housing
nationwide dropped 16% in value (compared to a year previous) ... a single
month's
year to year decline. Phoenix. by the bye, was third on the list with a drop
of 27%. The scope of such value declines says that location is less of a
factor than is the overall shift in the value of real estate to everything
else.

http://news.yahoo.com/s/ap/20080729/ap_on_bi_ge/home_prices
</HTML>




Archive powered by MHonArc 2.6.24.

Top of Page