Originally posted by Peter Zack
The economic boom of the past few years was built on a totally false basis. Homes sold with "no doc" mortages, people with no jobs, Mortgage securities based on junk. The housing undustry was fueled on a lie. It drove everything to record heights until the bill came due. So what's the scheme to create the next boom?
Oh you're preaching to the choir.
The housing industry was always a scam. It was fueled by "creating" demand with low cost loans. When that wasn't enough (see my note on how the average middle class wage in the US HAS NOT increased) they started fudging the #s.
As someone with only 9 credits in economics (but a deep interest), I can't say I fully understand everything but I was wondering over the last few years how if personal savings were at all time lows, food, fuel, medical and inflation were up, and wages were stagnant, how people could afford to buy these houses? Simply they couldn't. It was all smoke and mirrors!! And everyone was winning (government with a bigger tax base, banks with these loans, people living way above their means) so no one ever bothered to look into this.
We didn't buy a house in all this crazyness, and we looked like fools. My theory (backed by some very good economist, and financial planners) is houses don't actually have a return so buying one should be a choice based on something you want, rather than something you feel compelled to "invest" in. That is, after taxes, maintenence, inflation, and other factors, the return on a house after 20 years = 0% nation wide.
Obviously there are places with high natural demand that do better, but even with real demand, you still do better investing $200,000 into the stock market over 20 years (and I mean a lot better).
What hadn't proven true until now is the fact that houses ARE NOT guaranteed to continuously increase in value. It's precisely why I don't approve of bailouts. The reason is, my 401K lost 41% this year, but no one is bailing me out. My personal stock portfolio lost 6% this year, where is my money? People can't start crying that there house is worth less than they paid, because so is my portfolio!!!
I think people in the US might need to start looking at houses not as an investment but as a place to live. BTW, can you tell me if the percentage of wealthy who rent is higher or lower than poor people?....It's about the same. Only the middle class thinks owning a house is a god given right, and also a solid investment! Both of which aren't true, and are a huge part of this mess!