Debt Rattle June 17 2016

[Raúl Ilargi Meijer]

Unknown Dutch Gap, Virginia. Bomb-proof quarters of Major Strong 1864 • Stocks, Sterling Surge After British MP’s Death (ZH) • ’I’d Risk Life And Limb
[See the full post at: Debt Rattle June 17 2016]

[rapier]

Americans do not want affordable housing. They want the price of their house to inflate. Even after the last bubble there is not single politician, economist or political/economic commentator that 99% of Americans are likely to hear that will even hint that increasing home prices is anything but an absolute good. Rising prices of all classes of assets is the American dream. Asset inflation is a virtual existential necessity for Americans. Absent that inflation the political system and society fall apart.

Nobody in America who is within spitting distance of the middle class gives a flying f about housing affordability. At a maximum they think they need more income but the idea that affordable home or rental prices is a good thing is a totally foreign concept. Suggesting that home prices should not rise at a the rate of the CPI, if not more, is beyond Americans understanding. You just as well be talking Klingon for all the understanding any such talk will penetrate Americans minds. Even the poorest of the poor live in the hope that they can somehow get in on the ground floor of some investment and see it explode. Absent that dream there is no America.

[Dr. Diablo]

Not exactly true: Gen X and Y, who are broke and homeless, now outnumber the Boomers. They would like lower prices. However, you’ve got a worse problem: now that one is middle aged and past buying peak and the other has lived their entire life without the possibility of ownership, so now neither group even WANTS to own a house. –Or maybe more specifically, not in anything like these conditions. Like, if you give it to me for free I might be able to afford it, but otherwise, who needs the risk/hassle?

So? So, not only is the system hog-tied in needing to levitate national collateral to create the illusion of solvency, the houses that have no real market support or value have no velocity either. That is, it is the core asset and almost exclusive retirement money the Boomers have, but they can’t sell them. And at 0%, what will they do otherwise? Lack of velocity is simply another way to say a “Depression”.

Yesterday they ran an article on how 50% of retirees have $5,000 saved. I thought, “So much?” Who are these Americans who have even $5,000? That is to say, are one medical bill from bankruptcy. Point being, they cannot hunker down in their asset either, as they need daily expenses. Although taxes vary to the extreme nationwide, they will be eaten alive in the most populous states as well: NY, IL, CA etc have taxes exceeding $3,000/yr, or $250/mo in carrying costs, plus maintenance. High costs are not just devastating the young, it’s possible soon everyone will prefer lower prices.

Leading to the next problem: setting aside that the banks and therefore financial market would collapse 30 seconds after the $28 Trillion in housing stock was revalued, if house values declined, so would assessments and taxes, which would collapse state and local governments as well, quickly followed by the Federal Government, because if every city and state is individually bankrupt, it can only follow that the nation as a whole is too.

So, still looking for affordability? The opposite path is to never allow housing prices to fall, while there are no incomes to create buyers, which will freeze the market into the Dark Ages, which it has. There is no turnover, no purchases, no maintenance or improvements, and the economy as a whole is shackled for decades with a $28 Trillion albatross. Can’t happen? The original Great Depression of 1873 lasted 23 years and to some extent longer. From ’08 that would be until 2031.

[V. Arnold]

Dr. Diablo

Good points all. In the U.S. one never owns one’s home because of property taxes forever.
Some countries do not tax homes/property; so once paid for, they are free and clear. I live in such a country; it’s why I never bought a house in the U.S..
I find it difficult to envision the U.S. ever getting out of its depression. From afar it increasingly sounds like a long slide to third worldom…

[Author]

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