Monday, August 23, 2010

Has the Bursting of the Real Estate Bubble Taken Homes and Housing Out of the Wealth Equation? and Show Some Astoundingly High Prices Yet

We greatly enjoy looking at homes and housing and world real estate prices at superb property sites such as in the USA or in the UK.

Anyone who scans housing prices in the USA or the UK from coast to coast at those sites should quickly realize -- even after the housing bubble burst, that in some locations many home and housing prices are still totally out of whack when compared with what people actually earn and when compared with the price of a home 20 years ago. Luxury homes in the USA and homes generally in the UK carry outrageous price tags.

We say this is in spite of David Streitfeld's August 22, 2010 NY Times article that
Housing Fades as a Means to Build Wealth, Analysts Say
where he suggests that the housing gold rush is gone for good.

As Streitfeld writes:
"Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up."
We have great sympathy for those affected by the credit crisis, but none of that housing wealth was "real" wealth to begin with. It was simply "paper money" resulting from a type of "Ponzi" scheme created by credit derivatives and similar real estate investing that turned homes and housing into hyped and purported "investments" rather than places to live, thus driving up home prices to absurd levels from one buyer to the next.

A home in the USA that sold for $100,000 in 1990 was going for nearly three times that price at the tip of the housing bubble, far outstripping gains in personal income of the middle class.

What economic VALUE had been created in such properties in that 20-year interim to justify such high prices of homes?

In fact, nothing of value was created, and that is the problem.

Just because someone agrees to pay $300,000 for a home worth only $100,000 does not add $200,000 in actual long-term value to that home. All it means is that the buyer has agreed to an inflated home price and has taken out a mortgage for that amount. That house may be of that value to the buyer, as long as he is able to keep up his mortgage payments, but the price may have nothing to do with an objective real estate appraisal of the value of the home and property.

Home prices thus rose because people were permitted to take out inflated mortgages for overpriced homes that they really could not afford, relying on the hope that the value of homes would rise even more and they could soon sell them for a profit. When the bottom fell out of the market, they and their mortgage bankers and their affiliates were left holding the empty bag, which government bailouts have been refilling. Someone else pocketed the money and laughed all the way to the bank, Bush tax cuts in hand. The average, gullible citizens are thus duped out of their money.

The so called "wealth" increase in home values was a fata morgana, a mirage, and many homeowners still value their homes from that faulty perspective, so that the offered prices of many homes, especially those catering to the high income brackets, are still today often an absurd multiple of what the home originally cost not so long ago.

In many cases, prices are still much higher than the actual value of the properties. We recently saw a property in upstate New York being offered for $2 million, which however valued at less than $300,000. In the UK on we saw a property on the south coast being offered for about £3 million although most surrounding luxury homes had recently been sold for only about £500,000.

Accordingly, we do not necessarily agree with Streitfeld's analysis that housing bubbles are not a danger in the future. There are always people investing money in real estate and that always drives up home prices. Just imagine if we had a law that individual home purchases for investment purposes were forbidden and that you could only own the place where YOU live. Then home prices would be where they should be in terms of land value, construction costs and buyer income levels. Right now, every home purchased finances not only the house and lot purchased, but also a multitude of investors.

Intellectual Property in Fashion? Counterfeit Sneakers and the Knockoff Shoe Industry

At the New York Times, Nicholas Schmidle has a thought-provoking article Inside the Knockoff-Tennis-Shoe Factory in Putian, China.

Given that we have written about Sneakerheads before at LawPundit in Limited-Edition Design Sneakers are the Status Symbols of Choice : CNN : Sneakerheads pay big bucks for rare kicks : Shoes and More, here is our take on Schmidle's article:

Sam Solomon (name changed for the sake of privacy), who had been in the shoe business all of his life and who was a well-known sneakerhead, looked at my new Nike Frees and said, "Your sneakers are not real, they're fake".

"Fake?" I replied, unruffled. "They're not fake. I'm wearing them, am I not? These are real sneakers. I bought them on a business trip from a charming shopkeeper in Putian, China and I've been wearing them ever since. Great shoes."

"Look, these are real", Sam said, pointing at his own two feet, where he was sporting a pair of Nikes Frees identical to mine. "I know what your are thinking. You think they are identical, but they are not. My shoes cost $85 new and yours, I am estimating, cost around $15." Actually, they only cost me $12 as I bargained the price down. And then Sam proceeded to point out the physical differences in the shoes, visible only to a professional eye.

"OK, Sam", I said, "I guess what you are saying is that I have paid $12 for a real shoe but it is not a real Nike Free but only a superbly done copy, but it doesn't matter to me, I like my shoes, and they were a great deal."

"That's not the point", said Sam, "yours are counterfeit. Think of the intellectual property laws."

"I am", I said.

Where y'at? Students and the Provisions of the Credit Card Act, with a Small Reference to 10,001 Chalmations and Yatspeak thanks to Ylan Q. Mui

Yatspeak? Where Y'at? Awrite! except in N'Awlins which rhymes with Kaulins.

How does the Credit Card Act apply to students?

See Michelle Singletary at the Washington Post and The Color of Money: Basic lessons on credit cards for students in light of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.

See also at that same newspaper Ylan Q. Mui, Final phase of federal law restricting credit card fees, interest rates begins, discussing the Credit Card Act in general.

Hey, Michelle Singletary and Ylan Q. Mui are both undoubtedly candidates for the title of world's prettiest reporter, although Mui at her Twitter page writes that she is a "Washington Post reporter but Chalmatian at heart!"

Curious, we had to google the term Chalmation and found a fascinating explanation at kuro5hin in 10,0001 Chalmations-- true or not true?, where there is a remarkable introduction of sorts to some elements of Yatspeak, like
where y'at? Awrite! and N'Awlins (New Orleans).

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