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Gloom Grips Consumers, And It May Be Home Prices

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http://www.nytimes.com/2011/10/19/business/economic-outlook-in-us-follows-home-prices-downhill.html?_r=1&ref=business

ORLANDO, Fla. — Ernest Markey lost his stone-cutting business in 2009. He then sold his home for half a million dollars less than its value at the peak of the housing bubble and moved with his wife, Marie, to a smaller home in a less affluent suburb. They gave up two new cars and bought one. Used.

The Markeys have since patched together a semblance of their old life, opening a new stone-cutting shop. But they do not expect that they will ever recover financially from the loss of equity in their old home.

“For two years I kept thinking that things would get better,” Mr. Markey, 51, said as he stood in his empty store on a recent weekday. “Now I think the future doesn’t look so good.”

The United States has a confidence problem: a nation long defined by irrational exuberance has turned gloomy about tomorrow. Consumers are holding back, businesses are suffering and the economy is barely growing.

There are good reasons for gloom — incomes have declined, many people cannot find jobs, few trust the government to make things better — but as Federal Reserve chairman, Ben S. Bernanke, noted earlier this year, those problems are not sufficient to explain the depth of the funk.

That has led a growing number of economists to argue that the collapse of housing prices, a defining feature of this downturn, is also a critical and underappreciated impediment to recovery. Americans have lost a vast amount of wealth, and they have lost faith in housing as an investment. They lack money, and they lack the confidence that they will have more money tomorrow.

Many say they believe that the bust has permanently changed their financial trajectory.

:lol::lol:

If only they could get house prices up the whole economy would be fixed....

Time to start issuing some fake Nobel prizes to these people.

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People don’t expect their home to regain value, and that’s really led to a change in consumer attitudes about the economy that we’ve just never seen before,” said Richard Curtin, a professor of economics at the University of Michigan who directs its Survey of Consumers

When is this view going to arrive here in the UK?

Edited by MrFlibble

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When is this view going to arrive here in the UK?

Some time after they've twigged that their house(s) have even gone down in value.

Edited by rantnrave

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Inflation running at 5%+ and HPI pretty stagnant house prices are going down in value in relation to food / energy etc...

So they are becoming even more unaffordable then? That`s good news...

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They can never mention falling wages and falling number in work.. as factors in declining consumption.

Just like the old Soviet bloc countries could never admit production was falling.

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Guest

They should have a read of Buiter: Housing Wealth Isn’t Wealth

Abstract A fall in house prices due to a change in fundamental value redistributes wealth from those long housing (for whom the fundamental value of the house they own exceeds the present discounted value of their planned future consumption of housing services) to those short housing. In a closed economy representative agent model (the special case when the birth rate is zero, of the Yaari-Blanchard OLG model used in the paper), there is no pure wealth effect on consumption from a change in house prices if this represents a change in their fundamental value. When the birth rate is positive, higher fundamental house prices driven by the housing demand of future generations will boost current consumption.

There is a pure wealth effect on consumption from a change in house prices even in the representative agent model, if this reflects a change in the speculative bubble component of house prices.

Two other channels through which a fall in house prices can affect aggregate consumption are (1) redistribution effects if the marginal propensity to spend out of wealth differs between those long housing (the old, say) and those short housing (the young, say) and (2) collateral or credit effects due to the collateralisability of housing wealth and the non-collateralisability of human wealth. A decline in house prices reduces the scope for mortgage equity withdrawal.

For given sequences of future after-tax labour income and interest rates,a fall in house prices will then depress consumption in the short run while boosting it in the long run.

Edit: Bad copy & paste job

Edited by Guest

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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