For many years, it seems like the policy of the Federal Reserve has been to try and maintain property values while not creating overall inflation. Hanging on tight, almost like being afraid of change.
Well, what does one expect. It's the "establishment."
Of course, many people have also participated. Basically "gone along for the ride," so to speak, or the long commute that is.
Notice how house values skyrocket while other prices in the economy just go up modestly. We have been in an economy where certain sectors, like real estate and health care costs, have been allowed to skyrocket while the lid has been kept on inflation in other sectors.
Eventually, the economy becomes dysfunctional as things like housing and health care outstrip everything else.
It's like "differing economies from different planets trying to co-exist."
Can this situation be maintained?
Now it looks like the Fed has reached the end of this rope. They say they can't cut interest rates anymore leading to todays stock market tumble.
Well, if they did cut interest rates more, maybe the rest of the economy would inflate the way real estate prices have been doing for the past many years.
Imagine the bottom rung of the wage scale being $25 per hour. Imagine $25 dollar candy bars.
Xerox copies cost the same as they did in the 1970s. What's wrong with house prices?
So, it looks like home values will have to drop more, or else the rest of the economy will need to catch up.
The hyper inflation we have seen in real estate may need to spread to the rest of the economy in order to bring back some balance. Otherwise we have people working 3 jobs and / or commuting long distances just to maintain a roof over one's head. How wasteful can it get?
It shouldn't have to be that way. House values are just too high compared to the rest of the economy.
Remember the phrase, "drive till you qualify?" That's having to get up at 4 AM just to commute to work from a neighborhood you can afford. A costly way of doing business. Costly, especially when environmental costs are taken into account.
Now energy prices are starting to spiral up again. This too, adding to the worry on Wall Street.
An economy based on "drive till you qualify" and cheap energy is and economy built on a house of cards.
Built on a house of cards.
I almost typed "built on a house of cars."
There needs to be some new thinking in our economy.
New thinking can mean new opportunity.
We need cities that allow people to live closer to the job. To achieve this, we need denser neighborhoods and smaller residences.
We need an economy that is less based on narcissistic "your house value" issues and more based on "quality of life" issues.
How many friends do you have time for?
Count your number of friends, rather than your number of possessions.
Also realize that "quality of possessions" can continue to improve. Quality of possessions can continue to improve even if consumption is lowered.
Look at the computer industry. Smaller can often mean better.
Maybe that thinking can apply to housing as well. Smaller houses, more compact neighborhoods, less sprawl, less time in commuting, more time for friends.
Get my point?
On a related question, how many millionaires do you think live in your city?
Hundreds? Thousands? Millions?
Well, it depends on whether one counts the value of their primary residence, or not.
Many estimates for number of millionaires leave out the value of your house.
If "value of one's primary residence" is included, the number of millionaires skyrockets. It especially skyrockets in places like the San Francisco Bay Area where practically every middle class home is a million dollar proposition.
There are a lot of millionaires out there that would have never dreamed they would become millionaires back when they were in college.
A lot of 60s idealists. Millionaires, greedy landlords?
Who would have ever guessed.
In past decades when a lot of post war baby boomers were getting their start, no one would have dreamed that real estate inflation would make so many folks millionaires.
Millionaires on paper at least.
Back then, people were starting out as school teachers and so forth. Buying houses for around $50,000. Who would have ever thought that those $50,000 cracker boxes would now go for $950,000!
So, there are more millionaires than people realize, but that wealth isn't doing much good. Most people just don't feel like they're that wealthy. They're just "house rich and cash poor."
There is something out of balance in today's economy. Real estate has just gotten too expensive. The rest of the economy needs to catch up.
Someone just sent me an article from the New York Times. That article is about how Halloween in San Francisco's Castro Street District has met its demise. Canceled this year, due in part, to rising violence and changing demographics in the Castro Street neighborhood.
Spiraling property values chasing out the "gay character" of the Castro. Also growing tensions and the gap between the halves and have-nots.
Well, the silver lining is that more and more gay people are moving out into other locations across USA. Moving out across USA bringing some of that openness with them. Openness that was once more confined to the Castro is now moving out into Main Street America.
Innovation: that's what will bring us into the future.
Life is kind of a race between innovation and desperation.
Also a race between innovation and the needs of rapidly growing population.
Yes, population keeps growing. Zero population growth, a slogan popular in the 1960s has not been realized. Maybe we are a few steps closer to that goal, but not close enough.
Especially not close enough when global warming is taken into account.
Growing population is one of the things that keep housing prices too high.
Maybe that's the most convincing evidence that we have a population problem; "median single family home prices approaching seven figures."
It's "population pressure against increasing concern for the environment."
Back when I first moved to Bellingham, no one ever talked about the Lake Whatcom Watershed. Sudden Valley and all those developments were going in out there and not thinking anything of it.
That's where we get our drinking water from.
Now they're worried.
They're worried and saying STOP.
Housing has got to go someplace else. In filling, or what ever.
They can't build new subdivisions as cheaply as they did back in the 1960s, for instance.
Remember the 1960s?
Wasn't that when there was a song about "little boxes on the hillside?"
I remember that song. It went, "little boxes made of ticky-tacky?"
Who sang that?
Anyway, those were the expanding suburbs and that's what made it affordable.
Wasn't that song about Daily City in California?
Now we have to find new and more innovative ways to accommodate the growth that our childbearing population is still bringing to this planet.
Some rough transitions are ahead, but also this means new opportunities.
Innovation versus desperation. Get ready for more change and don't hang on to things like house value too tightly.