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View Full Version : What was Greenspan saying the other day?


Onan the Clumsy
29th Sep 2005, 12:15
Something about houseprices propping up the economy, but that homeowners now have so much equity in their houses that a drop in prices wouldn't affect the economy.

I didn't understand this at the time and I still don't. Perhaps I got it wrong.

Firstly, if you have equity in your house and the market tumbles, you lose your equity. How does THAT help the ecomony?

Secondly, why do people have so much equity? That would mean that nobody bought a house in say the last ten years as it takes that long to build up a good stake. What about someone who bought a year ago? how much equity do they have?

Thirdly, with the average price of a "family house in California" reaching $570,000 many people are taking out zero interest loans and therefore building NO equity. At these prices, I don't think I could build any equity in my house either.


Does anyone have a better explanation of what he said? or maybe a quote?

airship
29th Sep 2005, 12:40
I dunno. Move to Japan or Germany. House prices have been stagnant over there for donkey's years... :(

Onan the Clumsy
29th Sep 2005, 12:48
I thought that was Bavaria?

But if Britons were a smart people, instead of adding to the house-price bubbles in southern Europe and the Home counties most recently, they'd have been buying holiday homes in Bavaria. Where prices have been stagnant for donkey's years...

Maybe you need to buy some new newspapers :}


;)

airship
29th Sep 2005, 12:59
Haven't bought a daily in...donkey's years! :uhoh:

OK, I know the Economist is officially registered as a newspaper and I buy it every week but...

PS. baver (French) [bave] vi to dribble, to drool, to slobber, to froth at the mouth... :O

Re-Heat
29th Sep 2005, 16:19
Airship - I'm disappointed that after reading the Economist that you don't know!

1) House price rises create the feeling of wealth in a consumer, allows for greater collateral against which to put up against a loan, and generally results in greater spending by consumers in general who own homes, since the wealth feeling translates into a feel-good factor.

2) A fall in house prices is good since conumer spending is too rampany and historically prices are in excess of what they have normally been against wages - even accounting for a better financial market today. A fall now is less painful than a burst of house prices as speculative increases in prices stops at the advent of recession or a global downturn.

3) The amount of equity you have is not so important as the wealth effect of lack of can have on the economy. Consider it as you having full equity from day one, and a loan of x amount. Probably helps your understanding more.

4) Surely you mean interest repayment only? These are only for set times and bet that your pay increase so significantly that you can afford greater repayments later. Interest only repayment then converts to a normal repayment. OR you mean that betting on a price rise, selling will more than cover the loan after interest repayments leaving you with cash in hand. Either way you are looking at reinforcing a speculative bubble of asset prices - not good as what goes up always, always comes down!

But if Britons were a smart people, instead of adding to the house-price bubbles in southern Europe and the Home counties most recently, they'd have been buying holiday homes in Bavaria. Where prices have been stagnant for donkey's years
If it were smart, someone would have done it.

Onan the Clumsy
29th Sep 2005, 17:14
I remember someone buying and renovating the Berchetsgarten.

He wasn't British though.

SLFguy
29th Sep 2005, 17:40
Yeah but he got his dosh from an insurance jobby...burnt summat down as I recall..

:rolleyes:

G-CPTN
29th Sep 2005, 18:20
When I married in 1971, we put a 50 deposit on a new-build house to guarantee the price of 5000. The agent suggested paying a second 50 to secure a house on a later phase. His idea was that we would live in the first house until the second house was ready, and then move to the second house after selling the first. We were too afraid at ending-up with two mortgages (and we didn't have the 50!).
By the time the first house was ready, identical houses were selling for 7500, six months later 10,000, and a year after 'only' 12,500.

When we moved to Denmark in 1982, a particular (new-build) house we looked-at was priced at 750,000 Dkr. within a year, identical new houses (with all-new kitchen appliances and landscaped gardens) were down to 600,000 Dkr, and a year later to 500,000 Dkr. The result was that second-hand houses were not selling and many owners were unable to keep-up the payments and repossessions (at real-knocked-down prices were rife) and the way to get a house at a bargain price. I'd never experienced negative equity before, but of course it was to come to England soon after.
On our return to the UK, I was offered a job based in London. In order to afford to buy a house (near Richmond) the salary offered would have had to have been trebled . . .

airship
29th Sep 2005, 18:51
Re-heat, I almost believed that you were quoting the Economist verbatim for a moment :ok: Until I got to the graphic speling errors. Which were more worthy of a BBC News article, bless 'em, what with all the spending constraints they face these days. :O

Insuring buildings which will burn down is good business practice in a free market. I don't believe that the Berchtesgaden, being a whole municipality, ever burnt down. Perhaps you were thinking of the Reichstag?! I don't know if that building was insured privately. But if it had been, there might well have been a Jewish underwriter or 2 involved. One can only hope though that any claim was plagued by the usual insurance company problems when it comes to paying out... :uhoh:

PS. G-CPTN, the UK Treasury supplies all homeowners with an Epson printer and special paper supplies. Didn't you know that...?! :{

OneWorld22
29th Sep 2005, 19:15
Over here property proces have gone through the roof..I was talking to a friend high up in property finding and speculating and he says 18 months ago he and an associate purchased a house on Ailesbury road, Ballsbrige. (Very exclusive part of Dublin) for 4 million. He sold it recently for 9 million! :confused:

Sean Dunne has recently purchased the Jury's Site in Ballsbridge for 260 million. It works out at 55 million an acre :uhoh:

Things have just gone mad here. What the hell is around the corner??

Re-Heat
29th Sep 2005, 21:49
A crash, because real interest rates (less inflation) are so low, that in places they are negative. And aviation still can't make a profit in the inflation years!

airship
29th Sep 2005, 21:54
A crash?! But by the time the NTSB (or the Fed) get to the bottom of it, we'll be into the next upwave...