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Guest Post: $6.5 Trillion Lost, One House At A Time

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

$6.5 Trillion Lost, One House At A Time

The $6.5 trillion lost in the bursting of the housing bubble is not a "paper loss," it is tragically real.

Is anyone surprised that housing continues to slide? According to this report, Home Market Takes a Tumble: Turnaround More Distant After 3% Drop, Steepest Quarterly Decline Since 2008, housing has declined in value for 57 straight months, almost 5 years.

Since the housing bubble topped in most areas in 2006, and it's now 2011, that makes sense: 2006 + 5 = 2011.

American homeowners have lost $6.5 trillion in equity in those 57 months. Here is the data from the Fed Flow of Funds household balance sheet:

Homeowner's equity:
2006: $12.8 trillion
2011: $6.3 trillion

Net decline: $6.5 trillion

That is a big number, and the analysis I presented in The Housing Bubble Broke the Middle Class (April 27, 2011) suggested that this $6.5 trillion was roughly half of the middle class's total net assets.

It's difficult to grasp such large numbers, so let's look at some actual houses. The sales price of houses is public record, and more or less at random, here is a selection of recent home sales here in Northern California. I purposefully selected sales from a spectrum of neighborhoods ranging from working-class to very desirable, exclusive suburbs (the price will telegraph the property's desirability).

The key point here is that these catastrophic losses are taken by someone: either the homeowner, the lender, or the taxpayer. The gains were paper, but the losses are real. That is the ongoing tragedy of the housing bubble.

1. Recent sale: $820,000
Last sold 2007: $1.172 million
Nominal loss: $355,000
(does not include transaction costs or losses due to inflation)

Even if owner put down 30%, their equity was wiped out.

2. Recent sale: $110,000
Last sold 2005: $370,000
Nominal loss: $260,000

3. Recent sale: $160,000
Last sold 2004: $455,000
Nominal loss: $295,000

4 Recent sale: $175,000
Last sold 1999: $205,000
Nominal loss: $30,000

Nationally, prices have round-tripped to 2003, but that masks the reality that in many locales, prices have returned to 1998 or even lower.

This is a home in a very desirable suburb:

5. Recent sale: $650,000
Last sold 2005: $1.25 million
Nominal loss: $600,000

If you add up the losses from just these four homes purchased in the bubble era, the loss exceeds $1.5 million. That is a staggering loss from only four homes. Now multiple that by hundreds of thousands of homes.

Here are two homes in less desirable ("rough") neighborhoods:

6. Recent sale: $85,000
Last sold 2004: $295,000
Nominal loss: $210,000

7. Recent sale: $135,000
Last sold 2005: $419,000
Nominal loss: $284,000

Sadly, the subprime mortgage fraud enabled the "dream" of effortless profits from owning and churning real estate to filter down to even marginal areas. The bubble put real estate out of reach of qualified moderate-income buyers, and yet it was touted as a wonderful "innovation." It was certainly wonderful for Wall Street and those who originated the embezzlement-special mortgages, but less so for the taxpayers who were handed the bill to save the "too big to fail" banks and investment banks.

8. Recent sale: $255,000
Last sold 1996: $189,500
Nominal gain: $65,500

This is interesting because it offers an example of the pernicious effects of even "low" inflation. As we are constantly reminded, the U.S. has been in a "low inflation" environment for decades. This is of course a key part of the propaganda campaign to mask the severe erosion in wages' purchasing power.

On the face of it, the home seller pocketed a hefty profit of $65,500. But let's factor in commission and inflation.
The transaction costs (commission, closing, transfer fees, etc.) are typically around 7%, so the actual net capital gains would be around $47,500, not $65,500.

According to the BLS inflation calculator, which likely underestimates "real" inflation, it now takes $270,000 to buy what $190,000 bought in 1996.

So the owner actually lost purchasing power in owning this house for 15 years. Minus commission and closing costs, the proceeds were around $237,000, which is about $33,000 less than the inflation-adjusted break-even point of $270,000.

Yes, there is the mortgage deduction and tax breaks to factor in, but considered strictly as an investment, the nominal and real gains in real estate still matter.

Put another way: a house purchased in 1996 for $100,000 has to be worth $142,000 today just to keep up with inflation. Factoring in transactions costs, then the house would have to be sold for roughly $152,000 for the owner to extract $142,000--the sum needed to simply maintain purchasing power.

In other words, a house that rose 50% over the past 15 years has simply kept pace with inflation. The nominal "gain" is utterly illusory.


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Tue, 05/10/2011 - 10:06 | 1258961 wang
Tue, 05/10/2011 - 10:19 | 1259005 Life of Illusion
Life of Illusion's picture


Expect 5 more years of the same,,,debt deflation in slow motion as Ben prints and squatters scream for more free living.

Gov. housing program at expense of taxpayer and politically incorrect bond holders.

Tue, 05/10/2011 - 10:52 | 1259145 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

There are two housing markets.  One is the places where people can live and viably.  The other is where people will never want to live again.  The first is in upscale neighborhoods of cities and towns powered by hydroelectricity, the second is the places that are not sustainable.

The suburban experiment is over.  People will not be able to afford driving hours everyday.  People will not be able to afford to live in cities that power off of gas.  Cities that have no natural resources are soon to be, if they are not already, ghost towns.  Say good bye to Las Vegas, Phoenix, areas of Detroit, and swaths of suburbs in California.  These markets will bottom at zero.
Towns in the NE and NW that are powered off of hydro will bottom next year.  People will rush to live where energy from water is cheap.  They will power their electric cars with this "free" energy. 

These are the two housing markets, and the rift will seperate the lower class from the upper once and for all.

Tue, 05/10/2011 - 10:59 | 1259174 falak pema
falak pema's picture

the trick is to have a house in each market and a separate wife to service it. That way you win both ways, as Oligarch and as plebe. Double helpings at reduced prices! The USA has never been so promising!

Tue, 05/10/2011 - 11:04 | 1259195 cossack55
cossack55's picture

Thats some serious hedging. I like it.

Tue, 05/10/2011 - 11:06 | 1259188 Careless Whisper
Careless Whisper's picture

The analysis in this post is slightly flawed because the 2006 equity of $12 Trillion was never really "there". Alot of people acted as if it was there but it was all just a fantasy.

Tue, 05/10/2011 - 12:01 | 1259395 ghostfaceinvestah
ghostfaceinvestah's picture

Exactly, in a lot of ways it was a paper loss.

Tue, 05/10/2011 - 14:12 | 1259818 csmith
csmith's picture

Not a paper loss at all. IF the banks had not been bailed out (which in turn bailed out depositors), then depositors would've seen real cash losses. Instead, we enact bailouts and suck the value out of the currency a little bit at a time over 20 years.

Tue, 05/10/2011 - 12:27 | 1259491 srelf
srelf's picture

Wealth did operate during the bubble as if real, but it was indeed unreal, regardless of what the National Association of Realtors was telling everyone.

Tue, 05/10/2011 - 11:21 | 1259257 Calculated_Risk
Calculated_Risk's picture

Phoenix has nuke, hoover, and solar.

Tue, 05/10/2011 - 11:41 | 1259344 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I am with you on two out of three, but nuclear has a negative EROEI when considering storage costs.  Long Phoenix?

Tue, 05/10/2011 - 11:40 | 1259327 malek
malek's picture

"Powered by hydroelectricity?"

Which cities do fit the bill? Only Las Vegas comes to my mind...

Tue, 05/10/2011 - 11:45 | 1259356 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Excuse this post (considering hydro), I used bad examples, as LV and Phoenix run off of hydro.  The Bonneville damn and Niagra should keep the NW and NE going, but not much of the country runs off of hydro...well, not enough to power all the suburbs and whatnot.  I think the south has very little hydro power.  I guess I should take "The Long Emergency" back off of the shelf....

Tue, 05/10/2011 - 10:52 | 1259139 trav7777
trav7777's picture

The FRB is effectively "making the payment" on these to prevent the MBS and CDOs from collapsing.

The free availability of debt masked the fact that wages cannot keep up with prices the way that they have...this is a symptom of the hollowing out of the production base in the USA.

At some point, this trade deficit and all the rest of it must normalize.  People claiming that the Bernank is the cause are fools; the cause is the massive export of dollars for 40 years against massive imports of everything else.  Any other country without a petrodollar trying to do this would have seen immediate forex normalization.  In fact, during the 70s, the dollar was experiencing exactly that, inflation to its true comparative value.  The petrodollar recycling scheme merely delayed that.

Tue, 05/10/2011 - 10:43 | 1259100 Roy Bush
Roy Bush's picture

And the most insidious part is that you have to pay taxes on the "gain" that didn't even keep up with inflation.

Tue, 05/10/2011 - 10:04 | 1258950 the not so migh...
the not so mighty maximiza's picture

but the NRA states " Now is the perfect time to own a home"

Tue, 05/10/2011 - 10:27 | 1259030 tonyw
tonyw's picture

"It is difficult to get a man to understand something when his salary depends on his not understanding it." Upton Sinclair

Tue, 05/10/2011 - 10:31 | 1259050 SheepDog-One
SheepDog-One's picture

The other NRA states 'Now is the perfect time to own a gun'

Tue, 05/10/2011 - 10:04 | 1258951 friendly manitoba
friendly manitoba's picture

tyler  -  how old are you  and is that your picture  ? 

also  i  think you work  too  hard  but i do appreciate your work - how many people does it take to keep this thing  rolling  -   thx 

Tue, 05/10/2011 - 10:06 | 1258962 narapoiddyslexia
narapoiddyslexia's picture

Sorry if I'm wrong to ask, but is this a joke? The pix is from Fight Club, the movie, starring Tyler Durden. Look it up.

Tue, 05/10/2011 - 10:15 | 1258993 idea_hamster
idea_hamster's picture

* starring Brad Pitt in the role of TD

Tue, 05/10/2011 - 10:21 | 1259001 bob_dabolina
bob_dabolina's picture

Wait a minute. 

Brad Pitt is running ZH?

Tue, 05/10/2011 - 10:22 | 1259008 TheTmfreak
TheTmfreak's picture


Tue, 05/10/2011 - 10:25 | 1259031 Temporis
Temporis's picture

When the hell do we start beating the crap out of each other?

I have anger issues and need to take it out on the random silver bashing trolls who frequent these boards any time there is a down tick.

Tue, 05/10/2011 - 10:50 | 1259128 Dixie Rect
Dixie Rect's picture

The first rule of Zero Hedge is you don't talk about Zero Hedge.

Tue, 05/10/2011 - 11:16 | 1259235 writingsonthewall
writingsonthewall's picture

So when does project mayhem start?

Tue, 05/10/2011 - 11:24 | 1259273 fuu
fuu's picture

You missed that wagon a year or so ago.

Tue, 05/10/2011 - 11:28 | 1259279 TheTmfreak
TheTmfreak's picture

Is that similar to actions being taken on silver?

Tue, 05/10/2011 - 11:53 | 1259377 baby_BLYTHE
baby_BLYTHE's picture

Tyler is hot and so is ZH!

Tue, 05/10/2011 - 12:10 | 1259429 Abitdodgie
Abitdodgie's picture

I bet you say that to all the guys

Tue, 05/10/2011 - 10:12 | 1258969 Sudden Debt
Sudden Debt's picture

5 hamsters to take care of the needed electricity (once a month they get a 1 hour brake and than the servers go offline)

1 FED guy to fuck things up so there's a constant feed of newstopics

1 US PRESIDENT to CHANGE to constitution, bill of rights and your ways of living

and Tyler who goes all PAPARAZI on them :)



Tue, 05/10/2011 - 10:17 | 1258997 depression
depression's picture

Don't forget the 100's of brilliant commenters that snip and parse every word said along the way.

Tue, 05/10/2011 - 10:07 | 1258959 Sudden Debt
Sudden Debt's picture

Who would have guessed prices of CARD BOARD BOXES with drywall finishings to drop to a level of ONLY +500% of it's intrensic value?!


The average RAW MATERIAL VALUE of a house is still worth 6200$ so whatever happens, prices shouldn't drop below that level.


Tue, 05/10/2011 - 10:12 | 1258975 narapoiddyslexia
narapoiddyslexia's picture

And, as some folks always note, silver only costs $5/oz to mine. Thus, a house is worth at least 1240 ounces of silver! The American Dream.

Tue, 05/10/2011 - 10:17 | 1258987 TheTmfreak
TheTmfreak's picture

Which one do you think is more difficult and riskier of an action to do?

How about which one requires more specialized labor that you can't learn "tinkering in the garage"?

People are constantly proving that "any bum" can do it when it comes to building a house (and for alot cheaper).

Tue, 05/10/2011 - 10:21 | 1259002 narapoiddyslexia
narapoiddyslexia's picture

I pick mining. As a geologist who's built a house, I choose to never enter underground mines, but I live in my house. I stash my silver in bank deposit boxes, though, because I seriously doubt the government will seize it. Too many rich people, i.e., the owners of the government, own prescious metals. But to your point, I was being sarcastic. Just not very well.

Tue, 05/10/2011 - 10:24 | 1259017 TheTmfreak
TheTmfreak's picture

Geology eh? I minored (har har har) in it, and my girlfriend is getting her masters in it at the moment. Even though I make quite a bit of money eventually I'm "going galt" to start an organic self-sustaining farm, while I lush off of her career.

Oil wealth bitchez!

Tue, 05/10/2011 - 10:40 | 1259085 narapoiddyslexia
narapoiddyslexia's picture

I also got an MS in geology, long ago, and when I graduated from school, oil was $11 a barrel and 65% of the geotechnical workforce was unemployed. That was long ago, indeed. Guys who built houses got rich while I spent two years looking for work.

Back then, houses were a good deal. Not so much anymore.

Tue, 05/10/2011 - 11:27 | 1259276 TheTmfreak
TheTmfreak's picture

Times certainly have changed. While at Virginia Tech it was common knowledge that Geophysics MS students would be employed with starting salary of around 120k for their first year.

My girlfriend is doing an internship this summer with Cheveron making 6k a month. For an internship...

Tue, 05/10/2011 - 10:22 | 1259009 Sudden Debt
Sudden Debt's picture

It's really not that hard to build a house yourself.

Just follow the IKEA instructions:


Here's another one:


Tue, 05/10/2011 - 10:11 | 1258965 depression
depression's picture

I wonder what all those house price numbers look like when priced in real money ?

Tue, 05/10/2011 - 10:10 | 1258966 sharkbait
sharkbait's picture

Inflation forces everyone to become a speculator.  Either you speculate in ways to keep pace with inflation or you speculate in how long it will be before your financial assets ( savings ) are wiped out.

It is wrong to inherently punish the risk averse savers.  Their willingness to accept lower returns should not be compounded by debasing the unit of measure of their holdings.

Tue, 05/10/2011 - 10:40 | 1259096 Alex Kintner
Alex Kintner's picture

Savers and people on fixed incomes are very Patriotic at the moment. Their wealth (or survival fund as the case may be) is being transferred to Bernanke with each push of his Q-Easy button. I salute their patriotism and hope they land a prized location in their local Hooverville once the dollar sinks to zero. (snark for those who didn't figure it out)

As for your ZH Id, I do not appreciate the sentiment. Good day to you sir!

Tue, 05/10/2011 - 10:08 | 1258967 fbrothers
fbrothers's picture

taxee taking a hit too.

Tue, 05/10/2011 - 10:47 | 1259117 serotonindumptruck
serotonindumptruck's picture

True that. Many counties and municipalities refuse to adjust assessed values to reflect home price depreciation.

Tue, 05/10/2011 - 11:15 | 1259226 sun tzu
sun tzu's picture

My county tax assessor increased the value of my home. They needed more taxes

Tue, 05/10/2011 - 11:15 | 1259227 sun tzu
sun tzu's picture

My county tax assessor increased the value of my home. They needed more taxes

Tue, 05/10/2011 - 10:11 | 1258970 Temporalist
Temporalist's picture

"a record number of 44 million or one in seven Americans (half of whom are children) are currently enrolled in the government's largest nutritional safety net program — the Supplemental Nutrition Assistance Program or SNAP, according to the USDA. Formerly known as the Food Stamp Program, SNAP is federally funded, but administered by states.

Additionally, government-affiliated food banks and other community and faith-based food pantries and soup kitchens served more than 37 million Americans, according to Feeding America's 2010 hunger study. This figure is up 46% from 2006."

Tue, 05/10/2011 - 11:18 | 1259232 sun tzu
sun tzu's picture

Pelosi said that more people on welfare is good for the economy

Tue, 05/10/2011 - 10:09 | 1258972 TheTmfreak
TheTmfreak's picture

Who in their right mind thinks that the purchasing power of house that was sold 15 years later should be the same as when it was bought? Should one really "break even" on a 15 year old house? Unless that house was wrapped in a special "air-tite" case and never used selling it and breaking even in purchasing power is an asinine belief. Even a car that has brand new everything (engine and such) that is 15 years old couldn't be sold and break even.

Tue, 05/10/2011 - 10:12 | 1258981 CreditCrumbs
CreditCrumbs's picture

It does take a lot of maintenance and repair expenses to keep a 15 year old house in good condition. 

Tue, 05/10/2011 - 10:19 | 1259003 TheTmfreak
TheTmfreak's picture

This is what makes it all even worse. Not only do you have to pay ALOT of money to maintain it but there is absolutely no way you should break even, even if you've kept up with the house. Unless your property shit new minerals or value (the land) the house is a horrible investment vehicle. The whole premise behind a house as an investment is total crap (IMO). The only argument I can possibly see is that newer better higher quality businesses move in and improve the area and therefore your property just magically rises in "scarcity" value. (Location to new good things). But even then I think I'd still roll my eyes at that.


Back to the point, ask yourself a question. Would you rather buy a brand new house with brand new appliances? Or an old house with brand new appliances?

Tue, 05/10/2011 - 10:33 | 1259071 narapoiddyslexia
narapoiddyslexia's picture

As Mel Brooks once said, "... it all comes down to location, location, location."

Tue, 05/10/2011 - 10:53 | 1259135 Thunder Dome
Thunder Dome's picture

I'm two blocks from the beach in VERY high class neighborhood.  Paid basically nothing for the home in November.  Don't care what happens, this property will ALWAYS be desirable.


Upgrade if you can.

Tue, 05/10/2011 - 11:21 | 1259244 sun tzu
sun tzu's picture

You just contradicted yourself. You paid "basically nothing" for a property that "will ALWAYS be desirable"


Tue, 05/10/2011 - 12:01 | 1259392 Thunder Dome
Thunder Dome's picture

STFU!  You're probably in the Teachers Union.

Tue, 05/10/2011 - 11:24 | 1259259 TheTmfreak
TheTmfreak's picture

Now I don't know where you live, but in North Carolina there is that very same idea, which is total crap. (Not saying your case is, even though I still roll my eyes to the absolute terms you use).

The situation in NC is the beach is erroding away so fast that it eventually (and already has in lots of locations) destroyed homes and properties. Nobody wants to buy land where a house is on stilts above the ocean.

A great example of this is the recent news story about Japan moving and now there are many towns/cities where after 3 or 4pm there is feet of water in the town.

One finally example, look at New Orleans. Everything about it is water front. Soon the entire city will be sleeping with the fishes.

Tue, 05/10/2011 - 12:15 | 1259388 Thunder Dome
Thunder Dome's picture

There are no erosion issues where the home is.  The beach is freshwater and the property is in one of the finest suburbs of the city VERY CLOSE nearby.  No crime, no dregs, no losers in the area. 


Paid 500k.  That pricepoint is moving.  Nonetheless, I could care less cause I'm staying here to raise my family.  School system is finest in the state--wealthy residents make sure of that. 


Did I mention no dregs within miles, VERY IMPORTANT? 



Tue, 05/10/2011 - 10:16 | 1258985 depression
depression's picture

House prices always keep up with inflation, everyone knows that. It's the whole premise of the Bernank doctrine.

Tue, 05/10/2011 - 10:26 | 1259035 Jim Lahey
Jim Lahey's picture

I must respectfully disagree.  The whole premise of the Bernank doctrine is that inflation does not exist.

Tue, 05/10/2011 - 10:30 | 1259058 Temporalist
Temporalist's picture

I must disagree with you both.  The Bernank doctrine is "We do whatever we want.  Fuck the serfs."

Tue, 05/10/2011 - 11:21 | 1259249 writingsonthewall
writingsonthewall's picture

The first rule about the bernanke doctrine is that nobody talks about the bernanke doctrine....unless you fancy a trip to your local FEMA camp where they have an 'odd shaped box' ready and waiting for you...

Tue, 05/10/2011 - 10:30 | 1259060 QQQBall
QQQBall's picture

It does it momentarily, but only in transitionary phases.




Ben Ali

Tue, 05/10/2011 - 10:30 | 1259057 tonyw
tonyw's picture

Here in yourop we have plenty of houses that are 100 years old, if the house is built properly it shouldnot fall apart after a few years. Of course there is often a smallish premium on a new house but that's usually because it is better suited to todays' living and may be fitted out with new appliances, carpets etc and of course it is marketed somewhat more than a "used" house;-)


Tue, 05/10/2011 - 11:15 | 1259216 TheTmfreak
TheTmfreak's picture

Now this is where I think some leway can go against my argument. When we are talking about building materials that are no longer commonly used we are adding in actual scarcity.


Costs of building homes has gotten "cheaper", but so has the quality of the materials.

Tue, 05/10/2011 - 10:40 | 1259095 superflyguy
superflyguy's picture

If you replaced a roof, body panels and engine parts of your car when they wear out or break I'd say it's a fair comparison. People that do that (collectors) actually preserve the value just as everyone else does with with a home. There are quite a few collector cars forsale for a pretty penny.

If you'd treat your house like you treat a car (Detroit comes to mind), then the value is junk and they eventually come and buldoze it.

Tue, 05/10/2011 - 11:21 | 1259245 TheTmfreak
TheTmfreak's picture

To me collector cars are in their own category. And even then we would really have to split up a number of different categories there as the costs for the cars are strikingly different.

Find me a 1964 1/2 mustang that is in top condition and tell me how much it costs. I'm betting significantly less than a nice new mustang today. And even more so the purchasing power of the dollars used to buy it in the past significantly out weighs the resell value. Meaning you really just take it as a loss. There are other cars that that may not be the case, but I'd argue they are extremely friggin rare and aren't your "average joe collector car."

Tue, 05/10/2011 - 11:24 | 1259262 sun tzu
sun tzu's picture

You're talking about rare, antique cars. A 20 year old house will never be a rare, antique. There will be constant repairs to the roof, plumbing, electrical wiring, etc. just to keep the value even close to that of a new house. 

Tue, 05/10/2011 - 13:12 | 1259649 Abitdodgie
Abitdodgie's picture

I have a 1986 Toyota 4runner it is in mint condition but still is worth next to nothing 

Tue, 05/10/2011 - 10:49 | 1259136 swamp
swamp's picture

Totally agree that people sell dirty old used houses and expect to profit or break even. The housing bubble was hyperinflation. Houses are consumer items, not investments.

Tue, 05/10/2011 - 10:11 | 1258977 CreditCrumbs
CreditCrumbs's picture

"The gains were paper, but the losses are real."

Right on point. The gains were fake, but the losses have become someone's debt that cannot be defaulted on, since TBTF banks have captured the government. 

Tue, 05/10/2011 - 10:14 | 1258980 breezer1
breezer1's picture

charles, 7% of $65000 in closing costs does not leave $47500. 

Tue, 05/10/2011 - 10:32 | 1259053 Au_Ag_CuPbCu
Au_Ag_CuPbCu's picture

It's 7% of the sales price of $255,000 (which is around $18K), not the gain of $65,000.

Tue, 05/10/2011 - 10:16 | 1258983 RobotTrader
RobotTrader's picture

Right now, the market is ignoring this bad news.

Utilities, Internet stocks, Transports, shopping center REITs banging through new highs today.

Tue, 05/10/2011 - 10:33 | 1259073 docj
docj's picture

Of course it is.

And that will continue so long as The Market == The Fed.

Tue, 05/10/2011 - 10:40 | 1259086 Boilermaker
Boilermaker's picture

Exactly, is so fucking bogus now that all you can do is roll your eyes.

It's a pathetic piece-of-shit 'market' at this point.  Nobody even gives a flying shit now.  It's about as real as pro wrasslin'.

The REITs are on vapor volume so, of fucking course, they are going to gun the piss out them.  Who's going to stop them?  Me?  You?  Robotard?

Tue, 05/10/2011 - 10:14 | 1258986 John Law Lives
John Law Lives's picture

More QE to infinity.  That should do the trick...

Ponzi economy.

Tue, 05/10/2011 - 10:17 | 1258990 bob_dabolina
bob_dabolina's picture

But think of all the money saved by those not paying their mortgages.

Tue, 05/10/2011 - 10:26 | 1259024 newworldorder
newworldorder's picture

This is one of the major red herrings of the ponzi scheme. It keeps unrealized mortgage losses from hitting banking books and it keeps the money normally spend on rent/housing pumping through the economy. A real 2fer.

Got to hand it to the Bernark - there is a silver lining in maintaining the ponzi as long as possible.

Tue, 05/10/2011 - 13:19 | 1259662 Abitdodgie
Abitdodgie's picture

"Got to hand it to the Bernark - there is a silver lining in maintaining the ponzi as long as possible." This is true because when it stops they hang

Tue, 05/10/2011 - 10:21 | 1259000 stormsailor
stormsailor's picture

also the seller of the 152,000 house would have to pay cap gains on the difference, unless he tries to catch a falling knife and buys another using all the funds.


double fu_k you honest decent hardworking a--holes, work,pay taxes, and shut the fu_k up.

Tue, 05/10/2011 - 10:27 | 1259028 Vergeltung
Vergeltung's picture

so true. I forgot about that. however, I think if you are buying another home, the Cap Gains can be further deferred, no?


still, point well taken!

Tue, 05/10/2011 - 10:52 | 1259144 swamp
swamp's picture

The only one getting screwed in this is the renter, who pays for all the loser house debtors who speculated on a consumer item mistaken for an investment. 

Tue, 05/10/2011 - 11:11 | 1259204 chunkylover42
chunkylover42's picture

an individual can defer up to $250k in gains if they are selling their primary residence ($500k for couples).

Tue, 05/10/2011 - 11:26 | 1259274 sun tzu
sun tzu's picture

The first $250K is not taxable if it is your primary home for the last 2 years.

Tue, 05/10/2011 - 10:19 | 1259004 TideFighter
TideFighter's picture

Amazing conflation between the rising cost of home building materials and the cost to buy a brand new house. For example, three years ago, I could build an above average house (no Uncle Homer products-good stuff), for about $85 per foot. I priced out a 2,500 sq. ft. home last week and the best price jumped to $117 a sq ft. That is a $55,000 increase, however a new, still unsold home, can't get a Fannie auction bid of $139,000. Do we expect the prices of home building materials to go down? No. There are super deals out there if you can avoid the Realtors and bank loans. Where else can you pick something up and make +$100,000 when you buy. Another 10-20% downturn means nothing. 

Tue, 05/10/2011 - 14:00 | 1259785 tarsubil
tarsubil's picture

If your calculations are right, I feel really good about my house. Thanks!

Tue, 05/10/2011 - 10:20 | 1259011 Fantasy Planet
Fantasy Planet's picture

Sponge Bob lives in an underwater house and he seems quite content. 

Tue, 05/10/2011 - 10:24 | 1259015 Ying-Yang
Ying-Yang's picture

28% of home owners are underwater in their mortgage.

Many more just treading water while real estate taxes are eating their lunch.

This ends badly.

Tue, 05/10/2011 - 10:25 | 1259018 Azannoth
Azannoth's picture

add in real estate taxes and maintenance costs and I bet no1 who's owning a house has made any money on it(if he where to sell now or in the next 5 years), owning a house = cost! not income, why is it that no1 gets this

Tue, 05/10/2011 - 10:56 | 1259151 swamp
swamp's picture

Because they're all brain washed morons.

Tue, 05/10/2011 - 14:05 | 1259800 tarsubil
tarsubil's picture

You know, to be fair, in general "shelter" = cost! I agree with the sentiment that your home shouldn't be an investment but the idea that having a much bigger and nicer shelter than the king of england in 1100 shouldn't cost any money seems rather ridiculous. The problem is the rip off prices a lot people paid while they have to bail out banks who's scheme in selling fraud finally collapsed.

Tue, 05/10/2011 - 10:22 | 1259022 Oh regional Indian
Oh regional Indian's picture

I think a little dose of reality is needed here.

The bubble was inflating right up to 2006. The gains were as comical as the loss is tragic.

up was without basis but it set a tone. Now the music has stopped, that tone sounds rather dis-cordant is all.

Was in the thick of it in NorCal in 2006. It was surreal then, it is surreal now.


Tue, 05/10/2011 - 10:29 | 1259054 chistletoe
chistletoe's picture

ORI has a point.

I hesitate to add, excessive greed was not solely visited upon the big bankers.

I bought a house in 2001 for $96,000.

It was appraised in 2006 for $246,000 (in fact, the bank tried to get me to pull cash out on a refi but I politely declined, muttering under my breath.)

I still have it, Zillow says $145,000.

Now tell me, exactly how much have I "lost"????

Tue, 05/10/2011 - 10:39 | 1259084 Sudden Debt
Sudden Debt's picture


You could have sold.


Next question?


Tue, 05/10/2011 - 14:11 | 1259809 tarsubil
tarsubil's picture

Pfft, sold then moved and rented, because to realize those gains he'd have to avoid paying in at the elevated prices, waiting for the bubble to burst with perfect timing? If you minus those additional costs, my guess is that the $10Ks "made" wouldn't be worth the hassle.

Tue, 05/10/2011 - 11:26 | 1259282 trav7777
trav7777's picture

my accountant was recommending that I back out equity during the bubble and go IO loans and shit...I said no fucking thanks

Tue, 05/10/2011 - 13:32 | 1259706 bigluck
bigluck's picture

My accountant actually did that and now is in foreclosure!  Haha, they're sooooooo smart those CPA's.

Tue, 05/10/2011 - 16:08 | 1260331 Strider52
Strider52's picture

My friend's sister is a real estate agent. During the bubble, she got an equity loan for $6,000 and put in a fireplace. She is now foreclosed, not selling any houses, and lives in squalor with her boyfriend. Yeah, she's a good real estate advisor.

Tue, 05/10/2011 - 10:22 | 1259023 apberusdisvet
apberusdisvet's picture

Short:  suburban McMansions

Long:  800 sf condos on a bus line

The new reality

Tue, 05/10/2011 - 10:32 | 1259066 topcallingtroll
topcallingtroll's picture

I think that is an excellent call. Many people are looking for those properties. Probably need to scoop any bargains up quickly.

Tue, 05/10/2011 - 11:29 | 1259284 sun tzu
sun tzu's picture

You mean those little $500,000 condos near the bus line where all the vagrants and thugs hang out? It's a great place to raise a family. That might work in a few cities, but try that in Baltimore, Detroit, Cleveland or Newark

Tue, 05/10/2011 - 10:24 | 1259026 Alex Kintner
Alex Kintner's picture

Dont' worry. The Bernankster is seeing to it that no one loses money. He found a sucker who will eat all the loses. Dumb Banks made idiotic loans but Dumber (the Taxpayer) is being made to eat the loses.

MBS forever. Bernankster's place in the history books is assured.

Tue, 05/10/2011 - 10:35 | 1259079 Boilermaker
Boilermaker's picture

He's gunning the living shit out of the REITs also.  An unrelenting, neverending, in-yo-face ramp job.

Tue, 05/10/2011 - 10:28 | 1259032 RobotTrader
RobotTrader's picture

Bill Gross is nervously watching the NYA breakout today.

Wondering what the hell is going to say if he gets "left behind" with $80 billion in cash....


Tue, 05/10/2011 - 10:30 | 1259059 topcallingtroll
topcallingtroll's picture

Yeah it looks like the default position is a stock and bond rally unless future data is bad.

So much for my sell stocks buy bonds before the end of qe2.

Tue, 05/10/2011 - 10:33 | 1259062 SheepDog-One
SheepDog-One's picture

Worst case scenario Bill might end up like you in a junky 400 sq ft apartment writing meaningless posts to blogs all day.

Tue, 05/10/2011 - 10:37 | 1259077 topcallingtroll
topcallingtroll's picture

Hey that is 600 square feet.

He is downtown with all the excitement and he's got HOOKERS!

Tue, 05/10/2011 - 10:55 | 1259159 swamp
swamp's picture

Wow, he's got hookers. Is everyone envious of the slut?

Tue, 05/10/2011 - 12:10 | 1259415 baby_BLYTHE
baby_BLYTHE's picture

Robo was spotted not long ago:

Tue, 05/10/2011 - 10:26 | 1259037 mirac
mirac's picture

It is going to get worse...just the flooding and recent tornado activity going on now will hurt the housing markets further.  And why do people continue to build homes in areas that continually flood?  Insane!

Tue, 05/10/2011 - 10:34 | 1259063 Misean
Misean's picture

The government pays them to...DUH!

Tue, 05/10/2011 - 10:40 | 1259097 Ruffcut
Ruffcut's picture

Why? because they like waterfront and this is the only way they can afford it.

Tue, 05/10/2011 - 10:29 | 1259042 topcallingtroll
topcallingtroll's picture

THERE are some good cash prices out there for smart flippers and would-be landlords.

Tue, 05/10/2011 - 10:35 | 1259064 SheepDog-One
SheepDog-One's picture

'Flippers' lmao...hey just wait another month and the prices will be even better!!

Tue, 05/10/2011 - 10:40 | 1259087 topcallingtroll
topcallingtroll's picture

I said smart flippers!

That excludes me and 95 percent of the population

Tue, 05/10/2011 - 10:47 | 1259119 SheepDog-One
SheepDog-One's picture

All the great genius 'flippers' I knew around here a few years ago lost their millions overnite and are living with relatives now.

Tue, 05/10/2011 - 10:57 | 1259169 swamp
swamp's picture

Yeah, I know a couple of those flippers. Now they're house sitting for shelter !!!

Tue, 05/10/2011 - 10:44 | 1259115 newworldorder
newworldorder's picture

OK - If one is a flipper, you have to ask. What age group in America is going to buy this housing inventory near term or long term. How many late 20's, 30's and even 40 year olds are 1st time or upgrade homeowners? How does a young family afford to buy on their current income stream?

For that matter - How many young families are formed these days?

The losses mentioned in this thread will have multi generational impact. This is real net worth loss we are talking about. Couple that with our unemployment situation, deficits, baby boomer retirements, the current ideologues in Congress and the general ignorance of the population.

How the hell do we fix this? Are most of us dead men walking?

Tue, 05/10/2011 - 11:04 | 1259167 depression
depression's picture

House prices will continue to fall until the average price is affordable for the average income of the 20 and 30 year olds starting new families. So the kids loose their inheritance, but their more immediate need for shelter will be met. The Fed needs to just let home prices collapse so these new families can get themselves established more quickly. You have to look at the average income of a 25 year old and calculate the home that new family can realistically afford to carry, the old 30% of gross income rule.

Tue, 05/10/2011 - 11:58 | 1259383 chistletoe
chistletoe's picture

In my town, the average 20 and 30 year old male

is living with his mom

working part-time at minimum wage

and spending his entire salary on child support payments and gas.

His ENTIRE salary.

Tue, 05/10/2011 - 13:50 | 1259745 falak pema
falak pema's picture

now that is bad family planning

Tue, 05/10/2011 - 12:21 | 1259457 topcallingtroll
topcallingtroll's picture

That is why i only look at 50,000 and under homes and condos. You can get decent stuff at that price in arkansas.

Tue, 05/10/2011 - 11:09 | 1259209 Alex Kintner
Alex Kintner's picture

Yeeaah. About that whole "Doing Better Than Your Parents Thing". The fine print said "[1] Working class protections from the New Deal must stay in place. [2] Politicians of both parites must be somewhat honest."

Tue, 05/10/2011 - 11:29 | 1259297 trav7777
trav7777's picture

the buyers are knife catchers with starry eyes who can get leverage.

That's it.

Tue, 05/10/2011 - 11:48 | 1259357 Rainman
Rainman's picture

Many 20 to 30 year olds in Japan are avoiding home ownership. They have lived through the twenty year housing bear market and are wary of what it has done to their parents.

Tue, 05/10/2011 - 13:39 | 1259716 bigluck
bigluck's picture

I agree.  SMART flippers and buy and hold investors.

Tue, 05/10/2011 - 10:32 | 1259068 QQQBall
QQQBall's picture



Wait until you cash out on an investment property. Cap gains on the profit (not inflation-adjusted either) and income tax rate on the accrued depreciation write-off. I will bottom-line it; the government wins...

Tue, 05/10/2011 - 10:36 | 1259070 RexZeedog
RexZeedog's picture

Please stop with all the complaining. Anyone who was prudent, bought at the right price and got a fixed rate mortgage (as I did) has very affordable housing. Yes it does suck that imbeciles are in charge and have made things much worse than they need to be, but don't take your eye off the ball: Pay off debt and increase savings - that is your personal objective.

Tue, 05/10/2011 - 10:37 | 1259078 SheepDog-One
SheepDog-One's picture

Save what, ever devaluing dollars?

Tue, 05/10/2011 - 11:02 | 1259177 swamp
swamp's picture

The only imbeciles "in charge" were those in charge of their own life who purchased at sky high prices because they bought the propaganda. I haven't heard of one case where people purchased a home at the point of a gun.

Tue, 05/10/2011 - 10:33 | 1259072 Boilermaker
Boilermaker's picture

REITs making new highs today.  Just to smash another cream pie in the faces of the shorts and put holders.

The truth has nothing to do with this.  CMBS delinquencies at record highs also.  So what?  They'll just gun it to higher and higher multiples.

Truly fucking retarded and corrupt.

Tue, 05/10/2011 - 10:37 | 1259074 Jim Lahey
Jim Lahey's picture

Would love to see some stats that combine these figures with the percentage of underwater home owners who had their 401(k)'s wiped out as well.  The American dream is a liability.

Tue, 05/10/2011 - 10:46 | 1259124 SoNH80
SoNH80's picture

Excellent avatar, sir.  Seems like Sunnyvale was a glimpse into the future...

Tue, 05/10/2011 - 11:04 | 1259182 swamp
swamp's picture

Everyone was too busy purchasing the frothy drinks at Starbucks. The American dream according to you, buy the propaganda and be a sucker.

Tue, 05/10/2011 - 10:40 | 1259081 carbonmutant
carbonmutant's picture

Goes to show how much the prices were inflated...

We still have fantasy pricing out here in Googleland. 1000 sq.ft bunglelows for $1,000,000... 1750sq.ft. zero lotlines for $1.25 Million.

Tue, 05/10/2011 - 10:42 | 1259107 SheepDog-One
SheepDog-One's picture

Homes here thrown up in 1 week on .25 acre lots, crappy construction 2.5 bdr 1.5 bath selling for $400,000? Pure insanity. Now theyve dropped to around $130K or so, still ridiculous as youre still buying a piece of junk that has been sitting empty for 2 years too.

Tue, 05/10/2011 - 10:56 | 1259160 serotonindumptruck
serotonindumptruck's picture

"...youre still buying a piece of junk that has been sitting empty for 2 years too."

And they've likely had all of the copper wiring ripped out by tweakers during that time.

Tue, 05/10/2011 - 11:49 | 1259355 carbonmutant
carbonmutant's picture

Actually .25 acres for $400k sounds like a deal.

That $1.25 Million above was on a 3,675 sq ft / 0.08 acre lot

Tue, 05/10/2011 - 10:41 | 1259091 SheepDog-One
SheepDog-One's picture

My problem with this article- Stating the top of the RIDICULOUS massive housing bubble drop is counted as 'lost wealth' was never actually there to begin with.

Next up- Equity bubble massive bursting which will leave all the 401K bathrobe brigades broke in the streets...but there was never any real wealth in this stock bubble either so something that never existed in the first place cant be counted as a loss.

Tue, 05/10/2011 - 10:56 | 1259165 Ruffcut
Ruffcut's picture

Yes it was and is still there. Most homes bought at peak are huge debt objects. The debt existed and still haunts the bank books.

Transactions were made and the peak sellers walked off with a bundle of cash.

A paper loss is the same loss of wealth. There is always a day when the asset will need to be sold, and currently for less.

Tue, 05/10/2011 - 11:06 | 1259192 swamp
swamp's picture

Bank books are fractional fantasy. The banks never had the money to loan. 

Tue, 05/10/2011 - 11:17 | 1259225 SheepDog-One
SheepDog-One's picture

All just maginary numbers to flip, same as with the housing bubble hardly anyone questioned till it imploded, it was solid it was just 'the new normal'...'real estate never goes down only up'.

Same will happen with the equity and bond bubble few are questioning it now, but when it blows up the crying and trail of tears will be epic.

Tue, 05/10/2011 - 11:31 | 1259304 trav7777
trav7777's picture

bingo...Z1 credit topped at what, $51T?

The banks never had 51T to lend.  They just conjured it.

Tue, 05/10/2011 - 11:17 | 1259238 Alex Kintner
Alex Kintner's picture

Umm, well

The debt existed and still haunts the bank books.

It's been passed to the taxpayers to eat in the form of toxic MBS at 100 cents on the dollars. So I'm not losing sleep for the Bank CEOs plight.

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