Wednesday, August 25, 2010

Home values may have to drop till they are closer to where more working people can afford them

Recent figures on home sales are low. Economists are worried. Federal government may have run out of options for artificially stimulating the housing market. Prices may just have to fall to where more working people can afford to buy. People may have to opt for smaller places also. Eventually the market can find its equilibrium again and movement might pick up.

Meanwhile there are a lot of folks who spend more than 1/3rd of household income on rent or mortgage. Ideally, housing prices should be low enough so only 1/3rd of household income goes to housing. Then more money is freed for discretionary spending. More discretionary spending would help businesses such as restaurants.

If house values weren't so far out of line with wages, people might have more spending money for other things. Especially new folks now coming into the market.

Too bad for the folks who already bought on the high end of the market. Some of them can only get out of that trap through foreclosure process.

I'm glad my rent and my overhead has remained low. In many ways, I feel blessed. I don't have much space. I don't have many possessions either, but I have some maneuverability.

Lower overhead might be one of the things that it will take to get movement happening in the economy again.

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