Housing Losses Are a Financial Disaster

05-13-2011 • OfTwoMinds.com/blog

To say that housing losses are a financial disaster is a modest understatement. I do not think that most people really comprehend how true this is. The main reason this is so is first, leverage and second, the fact the US economy as a whole has over-CONSUMED housing for the time most people have been alive. They just do not know it because they have been duped into believing that housing is an "investment" when in actuality, it is a combination of a speculation (the land) and a long lived consumer durable (the structure). Absent inflation, there is no reason whatsoever for most houses to "increase" in "value". Yet most people believed that there was something magical about housing because "they are not making any more land". To illustrate, I will give you some examples on housing prices in the Atlanta (ATL) market from either areas I specifically know or people that I know who have bought homes that I know (for a fact) are worth much less than what they paid for them. I will also give you what I believe to be the "typical math" for the median household which shows anyone why, given the spending and savings habits of most Americans, it is essentially impossible for most people to accumulate wealth.