Saturday, August 25, 2012

Housing Hypocrisy

 
 
I don't understand why economists automatically assume that housing must always be escalating in value or the economy is not doing well.  They have chosen the largest big ticket item and decided that people should always be paying more and more for it as a system to base their economies on endless growth. 
Their economy is based on escalating real estate costs and the benefit to the people is that they can then borrow money against this sudden unearned equity in their property.  They assumed that this possibility is a short term good because it circulates money but it takes a lot longer to pay it back than it does to spend it.  That's called a recession, one caused by excessive credit or by another name the future was mortgaged and the payback time is the recession. 
Late night TV suggests that rents are now being raised and there will be a big rental squeeze in order to charge sky high rents.  So now the foreclosed upon will be faced with high rents, no credit and no way to provide for their families.  Sounds like a recipe for civil unrest to me. 
How about an alternative scenario where housing remains more or less static in price?  What would that do to the economy?  Perhaps the sliding scale interest on mortgages is a bad idea because it causes uncertainty for the homeowner.   Whatever happened to fixed rate mortgages?  Perhaps the types of mortgages should be limited to those that promote the long term health of the economy.  
If property remained static in price and the mortgage payments were on a constant amount, perhaps more personal financial planning could occur that is not based on property equities, like more savings, more predictable discretionary spending and maybe even more education as an investment.  Having to plan for constant inflation destroys equilibrium.  Mr. Bernanke plans for 2% inflation, which means savings is worth 2% less every year and items purchased cost 2% more.  Why do they say this is beneficial?