This is economic thinking at it’s worst.
U.S. home values are poised to drop by more than $1.7 trillion this year amid rising foreclosures and the expiration of homebuyer tax credits, said Zillow Inc., a closely held provider of home price data.
This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based company said today in a statement.
“It’s definitely going to continue into 2011,” Stan Humphries, Zillow’s chief economist, said in an interview on Bloomberg Television today. “The back half of 2010 looked horrible and 2011 should look like the mirror image of that.”
There are a few things certain, most notably, the Mr. Humphries is not an economist. Oh, he might call himself one, he might even have pieces of paper from some prestigious university, but he’s not an economist.
The article is wrong from the first three words. It isn’t “home values” at all. it should be home prices. They are as different as night and day. And it is obvious as to why:
Housing demand has slumped since the start of the year as the government tax credit expired
Demand has decreased. It creates surpluses. Surpluses put downward pressure on prices. It’s how markets clear, that is, unless government gets in the way. Of course that burst of home buying was due to the tax credit artificially lowering prices.
Back to the beginning, let me be perfectly clear (well, if dear leader can use it!!), absolutely nothing has been lost. Nothing at all. Nobody has lost anything by their home prices falling. If they are paying their mortgage, and are still in possession of their house, then they still have exactly what they started with.
I wish this was some novel and brilliant insight I came up with. I wish I could lay claim to this. But alas, I all can do is recognize the true wisdom and acknowledge that what was, always is, and always will be. Try as the modern alchemists of fiscal and monetary policy try, some things remain absolute:
The value of a specific article is always vague and arbitrary, so long as it remains unacknowledged. Its owner is not a jot the richer, by setting a higher ratio upon it in his own estimation.
Now, this is perhaps the greatest and most egregious example of policy driven economy. Government policy subsidized and promoted people sinking their fortunes and futures into their homes, and base it all upon a price. This was somehow supposed to be wealth?
Although price is the measure of the value of things, and their value the measure of their utility, it would be absurd to draw the inference, that, by forcibly raising their price, their utility can be augmented.
In what other market would one expect prices to continually rise, and that simply rising prices could be equitable with true wealth? And with what other market could there be so many “economists” of dubious analysis? Prices cannot continually rise. When they do, it is called a bubble. And bubbles burst.
Houses are consumer goods, not capital goods in any manner, and as such, are totally unproductive. Sure, it might be satisfying a consumer need, but that is consumer need, the final stage of production utilizing capital goods and scarce resources. As such, ALL consumer goods ought to be worth less over time than from their purchase price. The only things which wouldn’t be, for example, might be a collector item. One would certainly not want to play baseball with a bat used by Henry Aaron, but would certainly value it immensely for its collector interest.
So, I guess in addition to broken windows, policy driven economics creates many bad economists.