BTW, while housing prices tended to be pretty sticky downward during the post-1945 era, that seems to no longer be the case. When the 1980s California housing bubble burst in early 1990, prices fell 10 percent or more. Given the way people are leveraged into their houses, plus the high transaction costs associated with selling (7 to 10 percent when you account for real estate commissions, transfer tax, repairs prior to sale, etc), this effectively wiped out a lot of people's equity if they had only recently purchased a home. It looks like that might be a real possibility here again; there's been another rapid run up in prices in the last couple of years, but the real estate agents think the market is overvalued and are not dismissing the possibility of another drop.
Jeffrey Levin <jlevin at pacbell.net>
-----Original Message----- From: Picciotto, Sol <s.picciotto at lancaster.ac.uk> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com> Date: Sunday, October 04, 1998 8:07 AM Subject: RE: the most common leveraged purchase
>Why is it so difficult to accept that all commodities have both use-value
and exchange-value?
>Once you take that step, you can see that it is important to understand the
use-value aspects of
>a particular commodity or asset in order to fully grasp how its exchange
value is likely to
>perform. That is why I pointed out on this list that for most people the
use-value aspects of a
>house are primary, which explains why house prices rarely go down.
>
>cheers
>
>
>sol
>
>
>> -----Original Message-----
>> From: Jeffrey Levin [SMTP:jlevin at pacbell.net]
>> Sent: Saturday, October 03, 1998 8:46 AM
>> To: lbo-talk
>> Subject: Re: the most common leveraged purchase
>>
>>
>>
>> -----Original Message-----
>> From: W. Kiernan <WKiernan at concentric.net>
>> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com>
>> Date: Friday, October 02, 1998 7:54 AM
>> Subject: Re: the most common leveraged purchase
>>
>>
>>
>> >There's something wrong with the idea of the average house owner
>> >thinking of his house as an investment, leveraged or no. This is a
>> >mistake I see repeatedly; comparing a working-class house owner to a
>> >rich fellow idly gambling with investments.
>> >
>>
>>
>> Working class house owners see housing as an investment, too. First,
even
>> if the house does not gain in value, over time the repayment of the loan
>> means they have a siginificant equity interest. That can serve as
>> collateral for other loans (wise or unwise). More importantly, at the
end
>> of the mortgage term, your housing costs fall significantly. If you buy
a
>> house at age 35, at age 65 you own it free and clear and can retire with
>> lower living costs. People make this calculation all the time.
>>
>> If values do go up, the owner gets a leveraged return when the house is
>> sold. This gives homeowners far more cash than they had when they bought
>> the house. Owners (correctly in most cases) see this as a way of to
"move
>> up" to a larger or better house.
>>
>>
>> >Primarily, a house is not an investment! Not in any social class I've
>> >ever belonged to, anyway; I can't speak for the folks on the hill. A
>> >house is something to live in; you have to live somewhere. The
>> >alternative to a low down payment house for low income folks is to
>> >rent. When you rent, of course, your payments just go up in smoke.
>> >Certainly I'd rather buy a house with a slightly higher-than-usual
>> >effective interest rate than rent a house.
>> >
>>
>>
>> The idea that rental payments "just go up in smoke," but mortgage
payments
>> don't, implies that one is treating the house as an investment item as
well
>> as a consumption item.
>>
>