Did the author of this article flunk Econ 101 too?
NEW YORK (Reuters) - One-tenth of U.S. homeowners hold mortgages that are larger than the worth of their homes, Moody's Economy.com said on Friday.
Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.
As a result, millions of U.S. homeowners have the incentive to abandon their properties.
Or how about this one:
The only folks who would fail Econ 101 right now are self-interested real estate agents who cannot bear the facts that housing is and always has been a horrible investment.
You should check out IRRATIONAL EXUBERANCE by Robert Shiller. He shows hundreds of years of evidence showing homes trailing the pace of inflation...
P.S. Forget about that expert friend of yours who's using terms that are only designed to flunk student in Economics 101 at the local college
I do not want to get into an academic debate here. We are here to help people who have legitimate questions. If you really believe that housing is and has always been a terrible investment, then how do you explain that almost everything single wealthy person in the world has more than one property in their investment portfolios and that the poor are typically characterized as not being able to build wealth through equity. Housing offers also many advantages besides its guaranteed long term appreciation. The reason that some people are in trouble is that they became greedy and bought way beyond their means. And that was not entirely their fault. They got sucked into the sytem by listening to cheap advice or taking adavantage of easily obtainable funds without wondering what would happened if they lost their jobs or if the short term deals were going to be like that for ever.
If you read my profile, you would realize that I was not around in real estate when all that frenzy happened. I was a university professor who tried to teach my students good common sense and that included using credit properly and not believing everything that was printed in the newpapers.
This is what real estate industry has seen in last 5 years.
- Extreme greed of people who were getting in and out of houses just to cash in the gain.
- Folks were using their house appreciation as ATM machine
- Traveling around the world
- Buying world class luxury vehicles
- Remodeling their houses with latest/greatest luxury
- It was really amazing to see people whose income was low - they were living life of millionaires
It made me wonder- what is this path to success ? What is going on ? How can this be sustained ?
Every loan you take on has to be paid....many not be right away but within certain time. If people can't really afford why are they taking these loans like crazy...It was free credit , easy money and free money. It felt spoilt kids kid of rich dads just spend and have money.
- Real Estate broker was the most sough after career. Everybody is in real estate was making money like never before it was sort of like windfall and lottery. Even people did not know anything about real estate started behaving like Donald Trump and felt themselves like real estate Gurus.
People are at sidelines... The wealth which was generated by sudden house appreciation has started feeling UNREAL. Buyers are confused what is the real price...is it still the price which people used to pay in year 2000-2001 or current price is really the real price of the ASSET... At least the appreciation which it saw in last few years does not seem real any more.
People are not going to see this kind of appreciation going forward. Lending standards are tough. It is no more free for all game.
Sellers are having tough time believing that their worth id diminishing and will continue to diminish at faster rate. Lot of people want out before it gets to bottom... At least they can come out positive
My advise to buyer is if it does not make financial sense from your monthly/yearly payment point of view...Net in versus net out - do not get into real estate. The appreciation which we saw for last couple of years were not real and it is not going to happen again for many many years .
My advise to sellers are -- if you can afford it it is all fine but if not you should move out ASAP because worst is yet to come and trust me it is not going to be comforting.