Wednesday, June 13, 2012

Family Net Worth Articles Really Chap My Ass

I'm beginning to get really pissed off by the screaming headlines about the 40% drop in family median net worth between 2007 and 2010. The articles almost uniformly gloss over the fact that house prices were grossly inflated throughout the mid-oughts. The housing market rapidly inflated largely through the actions of speculators with visions of making a million in real estate. From the "Liberty Street Economics" post, which is a must-read:


In this post, we present new findings from our recent New York Fed study that uses unique data to suggest that real estate “investors”—borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties—played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.


So, it's largely wealthy speculators, not the poor, black people that the righties love to blame, that caused real estate values to plummet. Don't even get me started on the whole mortgage-backed securities trades, which produced a "moonbeam economy" much vaster than the real economy.

The CNN article glosses over these inconvenient facts, but some of the commenters get it. "TFF17"'s comment pretty much nails it:


"The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families."

No -- it indicates that the 2007 survey was inflated by bubblicious housing values. That "net worth" was not the result of saving and investing, it was the result of a large run-up in price over the five years prior -- much of which was immediately spent.



Of course, the fact that the banks actually owned these houses means that they didn't represent a family's "net worth"... "debt worth" is more like it.

Of course, Mitt Romney's plan would ensure that American families would lose much, much more than 40% of their net worth:





To me, the most damning thing about Mitt's prescription for housing is that he wants "investors" to purchase these houses and rent them out. To him, our society insufficiently resembles feudalism.

The biggest problem in our housing situation is that people have lost sight of what a house is. It's not a big truck an ATM, or a ticket to riches, it's a goddamn place to live, and people are losing their dwellings because our society lost sight of this.

8 comments:

ifthethunderdontgetya™³²®© said...

The banks also contributed to the bubble by making variable rate loans that were guaranteed by the reset provisions to result in skyrocketing monthly payments down the road.

They knew that the people they were pushing these loans on would be unable to make those payments later, but they didn't care. The plan was to sell the loans off via securitization, and they made bigger profits on these mortgages than plain vanilla 30 year ones.
~

paleotectonics said...

I refi'd during the middle of the bubble, 2006, and ignoring all the details, it didn't end well. But to illustrate ITTDGYstuffstuffstuff's point, the primary mortgage ended up being sold thru 5 financers and the 2cd went thru 4 financers. And I'm pretty damn sure everyone made money except lil old paleo.

Fuckers.

zombie rotten mcdonald said...

I had a friend who bought a house during the early part of the bubble, and he asked my advice; I strenuously urged him to avoid the variable-rate bullshit. Even being a stupid old architect, I knew that would not work out in his advantage. He never told me what he wound up doing, but he still has his house, so I think he went with a straight mortgage.

Which is also what we did all those years ago; and when the interest rates started dropping, refi'd a couple of times, moving to a 15 year and eventually getting the rate down to something stupid low, like 5.2. People would call us up, offering to refinance, and when we would tell them our current terms, they would just go "uhhhm, we can't match that". LOL.

And then we paid it off early anyway. Banks hate us.

fish said...

indicates that the recession wiped away 18 years of savings and investment by families.

Savings and investment. That is like lumping together Social Security and Medicare into the entitlements problem. One half of the "and" is included to obfuscate the real problem.

wiley said...

Houses aren't ATMs AND the value of a house is determined by the value of the land it sits on and the land around it which is determined by the economic activity in its vicinity.

Jobs weren't up, wages weren't up, business wasn't up, the population wasn't up. Nothing but housing prices were up and that was a big frickin' clue that it was a manic bubble.

Big Bad Bald Bastard said...

They knew that the people they were pushing these loans on would be unable to make those payments later, but they didn't care. The plan was to sell the loans off via securitization, and they made bigger profits on these mortgages than plain vanilla 30 year ones.

Yeah, and they refused to relent on the interest rates in order to allow borrowers to pay off their loans.

And I'm pretty damn sure everyone made money except lil old paleo.

Damn, I feel for you.

Which is also what we did all those years ago; and when the interest rates started dropping, refi'd a couple of times, moving to a 15 year and eventually getting the rate down to something stupid low, like 5.2. People would call us up, offering to refinance, and when we would tell them our current terms, they would just go "uhhhm, we can't match that". LOL.

You're smart, you're not greedy, and you own the home to live in it. I'm happy to hear that at least one thing is going well for you these days.

One half of the "and" is included to obfuscate the real problem.

Smoke and mirrors... it's amazing how the media now serves to cloak things rather than reveal them.

Jobs weren't up, wages weren't up, business wasn't up, the population wasn't up. Nothing but housing prices were up and that was a big frickin' clue that it was a manic bubble.

Yeah, it's amazing how many people fell for it.

M. Bouffant said...

House (It is not a "home.") ownership turns one into a fucking "Get off my lawn!" Nazi & non-stop whiner about property taxes. Screw that!

And how can people "own" land? The land was there long before the "owner" was born, & will be there long after the "owner" is rotting in it.

Substance McGravitas said...

One of the things about reading Debt was that it made me think of the pursuit of money as an aberration apart from any moral component: the point of it is distribution of other stuff, rather than accumulation of the stuff itself, which is fictional anyway.

Mind you those who don't have a lotta cash like to say shit like that.