The American housing market, where the global economic crisis began, is far from hitting bottom.
Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.
In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.
Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates ”” all of which will reduce the already diminished pool of would-be buyers.
Living within your means, well within. Putting money aside for a rainy day first. Paying off your house. Another example of how smart our parents were.
Exactly, #1. Lots of “irrational exuberance” and conspicuous consumption, aided and abetted by dodgy lending practices and essentially non-existent oversight of Fannie and Freddie by Congress. “Trading up to a larger (read: pricier) house every few years!!??” Sheesh, my parents lived in their two homes for 17 and 23 years, and my in-laws lived in the same home for over 40 years. My wife and I ended up buying “less home” than the mortgage lenders were gladly willing to loan us, and that with 20% down.
This also illustrates the axiom that you should NEVER consider your home a key part of your investment assets–it’s a roof over your head, and if you turn a profit when you sell, that’s gravy.
I will opine that, in the event the Democrats gain the White House and maintain control of both houses of Congress, one of their targets will be the capital gains tax advantages of home ownership, especially for rental units. In their worldview, the wicked landlords habitually exploit their tenants and don’t “deserve” to profit from selling their properties. Of course, the fact that such a policy will cause the further depression of home prices and discourage landlords from investing in improvements to their rental units will be quietly ignored in the press. Its other effect, to reduce the building of and, thus, supply of affordable housing will be blamed on the very people who, otherwise, would invest their money in new rental units from which they could expect a reasonable rate of return. (This is not an original idea with me, I hasten to admit, but one borrowed from Thomas Sowell’s excellent book on BAsic Economics.
“One of their targets will be the capital gains tax advantages of home ownership”
What toxic flatulence.
PS to #4: Comment #3 is a John Birch-style rant proclaiming that Democrats hate free enterprise, private property, and the like. In the old days, the rant might have also have asserted that we sought to sell out our country to Soviet Communism.
I’ll make a prediction beyond that contained within the NYT article. The oldest of the baby boomers are now 62. Within the next decade, retiring baby boomers will want to sell their McMansions and downscale to smaller homes. Guess what? This will depress housing prices further, as more and more homes come onto the real estate market. Not only that, but because the 20-somethings won’t be able to afford even the depressed McMansion prices and/or won’t want McMansions, because of the high hvac costs of same and their suburban distance from mass transit, the prices will drop even further. This will mean that a lot of boomers who thought they could finance their retirement through their homes will be sadly disappointed.
Elves, are you all asleep? Is “toxic flatulence” and “John Birch-style rant” now the standard of discourse for T19? With regard to Ireneaus’ ad hominem attack, here are the facts. I own an 1800 sq ft inside townhouse (hardly a McMansion) in Northern Virginia located less that 500 meters from a mass transit rail station. I’ve owned it for over 20 years, rented it to a succession of mostly military and mostly minority tenants who commuted on the train. I kept it maintained out of the rent (which are less than the monthly mortgage payment), expecting that it would eventually be sold to pay off the mortgage on my primary residence, also quite modest, so that I could live on my retirement income without being a burden on my son. Six months ago, when it seemed that either Hillary Clinton or perhaps Mitt Romney would be the next President, there were four similar properties in the neighborhood listed for sale at $310-350,000. Today there are no listings at all in that area and my property, although leased until next August, is unsaleable. I cannot afford to put any more money into my property since I have zero chance of any ROI. As long as it doesn’t fall below the minimum habitability code of the county, I will do nothing else to maintain or improve it because I can’t afford to throw good money after bad. My tenant will either put up with the deteriorating condition of the home or move out at the end of the lease. He may not even wait until the lease ends. If I can’t get another tenant who can pay enough rent to at least partially pay my mortgage costs, I will have to do what landlords have done in so many Rust Belt towns across the country: walk away and let the bank have it. It will then most likely sit abandoned and drag down the rest of the neighborhood, attract crack dealers, etc. In place of a comfortable, efficient dwelling where families could enjoy a decent, affordable home and I could build some equity to get myself out of debt in my old age, we will have the beginnings of a slum. All this because the tax system that governs the value of my and others’ property is going to be overthrown by government fiat. If I had known that I could not rely on the predictability of the tax code and the law, I could have taken the money (and effort) I put into providing a decent dwelling place for these families into gold coins or sent it to a bank in Austria or blown it on a big weekend in Vegas.
The point I was trying to make, before Mr. I’s descent into personal vilification and howling non-sequiturs, is that there is an economic basis to decision-making that directly affects small-scale landlords (me) and good people who need affordable housing (my tenants) and our neighbors whose quality of life, property values and safety are indissolubly linked to government tax policies–which Senator Obama clearly intends to change. that change will not be good for anyone in Northern Virginia and, since the property will likely be abandoned and auctioned on the steps of the courthouse, it won’t even raise any revenue. How is that a good thing?
Jim K [#7]: I’m sorry that your property has gone down in value and that the decline risks disrupting some carefully laid retirement plans. But real estate prices are falling nationwide. Obama did not cause the decline, and there’s no reason to believe that having Romney and Clinton on the ballot would have prevented it.
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If taxes are changed “by government fiat,” that’s because they are also imposed by government fiat.
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In your comment #3, you go on about how “in [the Democrats’] worldview, the wicked landlords habitually exploit their tenants” and deserve to get clobbered, even if the clobbering destroys whole neighborhood. Attributing these views to an Obama Administration and Democrats generally is over the top and can fairly be called a rant.
Irenaeus, as I outlined in my discussion (which is evidently beyond your level of economic comprehension), the endlessly repeated mantra of “change” coming out of both the Democrat candidate and the leaders of both houses of Congress clearly contains a bias against “unearned income” of which rents and capital gains (as well as interest, dividends, pensions and Social Security) are, at least in their view, examples. If they get in office they will make, by government fiat, profound changes in the tax treatment of unearned income. This is the only conceivable way that “95% of working families” can get a tax cut while Federal spending goes up by $800B. Such a radical revision of these very basic microeconomic rules will have, and has already had, severe consequences. If you check back, you will find that the steepest declines in both the stock market and housing prices began once the Democrat nomination was sewn up. Much of those effects are in anticipation of what investors fear an Obama administration will try to do.
The consequences to my net worth and retirement plans are my concern and I’ll make the changes necessary to survive. As I attempted to explain earlier, one possible change is to let the property deteriorate or even board it up and walk away. However, the consequences of making the tax system unpredictable and biased in favor of salaries and against “unearned income” are being felt by everyone. In the case of rental properties, all parties are losing: landlords, tenants, communities, and even those small businessmen like “Joe the Plumber” who make their living repairing and renovating homes.
Now, then, what is my evidence that the Democrat party is biased against landlords and in favor of tenants? Other than the spreading slums and long-ago collapsed property values in cities like Detroit and Cleveland (all of which have mayors who got into office in much the same way as Obama is pursuing), let me posit the Democrat sheriff of Cook County, Ill. Just a couple of weeks ago, and to overwhelming media adulation, he announced that he would no longer serve eviction notices on foreclosed houses in his county. Why? Because the tenants had “done nothing wrong” and the whole problem was greedy landlords and banks. Leave aside for the moment the terrifying implications of an elected law enforcement officer deciding unilaterally that he no longer will enforce the law. (Is habeas corpus something he considers equally disposable when he decides that this writ is “unfair” to some group?) Ask yourself what such a policy from a Democrat politician reveals about his party’s attitudes.
To sum up, Mr. I, I don’t know you or your circumstances. Your theological and ecclesiological views, even when I don’t agree with them, are generally well argued and well informed. However, when you stray from your patch into politics and economics, you tend to the superficial and snarky. That suggests to me that you have always worked for a salary (or perhaps you live off a trust fund) and that you’ve never run a small business or invested in rental properties. Had you done so, you would understand better why making the tax system unpredictable and biased against some forms of income and in favor of others has consequences to people and communities.