Err, context Dean? Aren't you the person who keeps telling us that context is important?

"imply a loss of $8 trillion in housing wealth."

How does that very large number compare to anything else?
At a guess, total US household wealth is around $50 trillion? So loss in the worst case is 16-20% of total household wealth?
Bad, yes, but is that a catastrophe or not?

In related news, the government has found a new way to produce "rising (new) home sales" - just revise last month's number down sharply, and a decline becomes, magically, a "rise".

Sorry Tim,

I was thinking of the article, which did describe the $2 trillion decline as being equal to 10 percent of housing wealth (which implies that $8 trillion is 40 percent), but should have included this info in the blog post.

40% of housing wealth is a large number: as is 20% of total household wealth of course.

But don't do it again or we'll have to get really contextual on you....
:-)

The problem is that how much wealth also disappers in stocks and etc. when housing falls.

The reporting on the housing market is driving me nuts, primarily because most of the reporting seems to ignore the unrealistic run-up in housing prices over the past few years and the subsequent impacts that this run-up had on both individuals and the overall economy. While there has been a considerable amount of discussion on the positive aspects of this run-up, very little has been mentioned in the news about the downside of this run-up. The NYT article mentions a potential loss in property tax revenues of $917 million by the end of 2008, but doesn’t mention the surge in property tax revenues that resulted from the recent unrealistic run-up in housing prices. Similarly, a segment on Marketplace Morning Report today mentions the potential decline in housing wealth of $100 billion by the end of 2008, but failed to mention the run-up in housing wealth that resulted from the recent surge in housing prices.

While I believe that the rapid run-up in housing prices has been great for the majority of American households, I feel as though the recent run-up in housing prices has done more to reduce our household’s wealth than any other event during my lifetime. My wife and I are in our late-40’s and were hoping to become first-time home buyers about 7 years ago. Unfortunately, we were overwhelmed by the rapidly escalating prices and the extreme bidding competition for houses (we live in the Washington, DC area). So, we continue to rent, our savings that we have built up over 20 plus years in the workforce seem pretty inconsequential, and we live in fear of future large-scale increases in rents.

I feel that there are some important stories underlying the run-up in housing prices that have not been told very well by the news media, government, or the academic community. Although, I am thankful that Dean Baker is out their as what I see as a lone, rational voice in the crowd. From where I sit, it seems like the rapid run-up in housing prices has led to a huge transfer in wealth from non-homeowners to homeowners. Also, I think that one could argue that the recent trend in housing prices represents an intergenerational transfer of wealth as well—from younger to older generations. I’ve heard a number of parents say that they wish their children could afford to buy a home similar to the one that they own or even in the area that they live in.

One only has to look at the dollar.

The loss in the housing market will be 8 triilion or more when the devaluation of the dolllar is added.

My take is that this wil get much , much worse. Dean put up some graphs showing fixed rate loans originated from 2004 thru 2006 going bad just as fast as the subprime loans.

So much of the origination , fixed rate included, is going bad.

Does anybody see a booming economy with 5-8% raises across the board in the near future?

I see the opposite , layoffs , inflation in food , fuel and health care in the upper single digits.

Just today oil was at $90 after a small pullback. And this in the face of a sliding economy.

I expect a severe recession or even a depression in the near future. There is nothing Bernanke can do.

If Bernanke cuts rates the dollar falls and REAL inflation goes bonkers. If Bernanke stays the course the stock market tanks.

We need a cleanup a la Paul Volcker. Banks should be audited immediately .
Writedowns made to happen.

As it stands we are in for Chinese water torture. The drip , drip , drip of bad news as our neighborhoods flower with For Sale signs.

"I’ve heard a number of parents say that they wish their children could afford to buy a home similar to the one that they own or even in the area that they live in."

Well put and I think that this also has a lot to do with the decline of marriage and family building among the lower middle/working class. I have read a number of articles noting that marriage is becoming more common among the professional class/ upper class, mainly college-educated, while declining among the lower middle/working classes.

I attribute this to the fact that it is becoming increasingly difficult if not impossible for lower middle/working class people to form "families" as we have come to understand them. If a responsible working guy doesn't feel that he can provide a "normal" life for a wife and kids, he is less likely to take that responsibility on. As more and more working class guys do this, more working class women will be single mothers just as the underclass women have been for years and for the same reason: the decline in the availablity of "marriageable" men in their social circles.

I think that this is part of the obsession with iPod, cell phones, game boxes, and the ensuing extention of adolescence: Maybe Joe can't afford to settle down, marry Jane, buy a house and support (with Jane's help) a couple of kids but, by golly, he CAN afford the fanciest cell phone, the latest gizmo, etc.

This doesn't bode well for the US. Sad.

We bought during the buyers frenzy near the 1989 peak in the DC area. It was ridiculous, with everyone falling over themselves to outbid the next guy.

When we needed a larger house in 1996, the upscale house we ended up buying had dropped from $699k to $389k in just over two years on the market. It's now "worth" three times that.

Sometimes it pays not to run with the herd.

The housing bubble is like standing on the end of the tree limb to saw it off. Anytime a long lived asset loses value, the collapse is awful.

It never was a question of price, like now, it has always been the affordability effect of interest rates on the NPV of cash flow. Incomes simply will not support the cash flow at 6 - 7 % mortgage rates so the price must fall. Greenspan always knew this and that is why his claim that he didn't is diengenuous in the extreme.

The worst course of action is to try to support prices by devaluing the currency and forcing interest rates back down.

The fascists are lame ducks and will be gone soon. I respect the the NY senators but they are working over-time lobbying for the home state financial crime families. They need to be told to stop.

Bernanke and the Fed need to stabilize the dollar and interest rates and deal with the unstoppable rebalancing.

Why are the Democrats trying to pass on over-priced housing to someone else? If the crash is reset until after the election, the Klan will blame them.

It's time to pay the piper. Lenders are going to have to bite the bullet.

On my website this month I have an angry real estate agent that says just that. He specializes in Short Sales and he's busy as ever. Short Sales and forgiving debt are the only way out of this mess.

www.AnonRecordings.com

Ok, extrapolate the growth of housing from 1973 to 1997 and then project that to today and you have a housing value of 12T, instead of 21T of today, a 9T shortfall. Banks which have a 10 to 1 assets to credit ratio need to cut lending by $10 for every $1 loss. So, 90T future lending crunch. No one over these past 10 years has seen their wealth grow, they've seen as an aggregate their capacity to carry debt grow. A wage push inflation that doubled the prices of housing. For present first time buyers, instead of getting single family homes, they are getting condominiums. For current owners, they will eventually see their housing drop in value by six figures if their present house is values at 350k or more. For those who bought in the last 6 years and couldn't even afford a down payment, that six figure drop will mean their home is now a debt prison with a decades long sentence. Insolvent banks, people who will be economic slaves to their jobs with no mobility, hard to see an upside.

Actually, the dollar is immediately borrowed by the Government and put to use in all the things they do. In a way the Trust Fund is a type of forced savings. The payee eventually gets back the principal with interest when he retires or is disabled. Any kind of retirement savings does the same thing, though private retirement funds obviously invest much more in the private sector.

its like talking everyone over a bridge cause there is some kind of fun to saying 'see, another one jumped. i told you.'