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"Correction" Math - Life is strange... — LiveJournal

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Dec. 6th, 2008

04:10 pm - "Correction" Math

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Hi!

Here is an interesting comment on a SF news story related to the housing price slump:

BusStopLoser 12/4/2008 10:11:37 AM

As we slide into widespread price deflation, the Fed will crank up the printing presses and push inflation in to the six to eight percent range. This will let real estate prices stay flat in nominal terms while declining in real terms - so your $500K house will still sell at that price while actually declining in real value $30-$40K per year. Let that run for three or four years and you have a 20-25% correction, with most people being too math stupid to realize it.

Click here to read the original story.

What do you think will happen?

Cheers! generalist

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Comments:

[User Picture]
From:gizbot
Date:December 7th, 2008 04:45 pm (UTC)
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California property has strange cycles, in large part due to the odd tax structure. There is a strong and increasing incentive not to sell, driving the velocity of money down. While property taxes on a new property run about 1%, it runs 0.5% on our property. If we had held our property since the 1970s, it would run about 0.05%. This means our property is worth more to us than anyone else.

Deflationary spirals are a bug-a-boo much talked about on conservative channels. It's usually used to divert people from the fundamental economic problems. We avoid admitting that the national debt grew to bursting points over the last eight years, corruption is getting out of hand, or that the ending estate taxes has meant the loss of major funding. It's all execution.
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[User Picture]
From:tsennyipa
Date:December 8th, 2008 03:20 am (UTC)
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Well, yeah, but... If the price of your house in dollars declines, you can wind up with negative equity. If the price of your house in dollars stays the same, and the value of the dollars declines, then the worst that happens is that the real dollar value of your equity drops. This is a bad outcome from the perspective of wealth, but an excellent outcome from the perspective of keeping you in your home.

The fact is that the market *needed* correction. I've been saying for years that the real estate market in Silicon Valley, for instance, was ludicrously overvalued. Letting the air out of the tires gently beats the crap out of slashing the tires, which is the only other real alternative.

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