In World's Best-Run Economy, House Prices Keep Falling

[whatchamacallit]

Because That's What House Prices Are Supposed To Do

When Americans travel abroad, the culture shocks tend to be unpleasant. Robert Locke’s experience was different. In buying a charming if rundown house in the picturesque German town of Goerlitz, he was surprised – very pleasantly – to find city officials second-guessing the deal. The price he had agreed was too high, they said, and in short order they forced the seller to reduce it by nearly one-third. The officials had the seller’s number because he had previously promised to renovate the property and had failed to follow through.

As Locke, a retired historian, points out, the Goerlitz authorities’ attitude is a striking illustration of how differently the German economy works. Rather than keep their noses out of the economy, German officials glory in influencing market outcomes. While the Goerlitz authorities are probably exceptional in the degree to which they micromanage house prices, a fundamental principle of German economics is to keep housing costs stable and affordable.

It is hard to quarrel with the results. On figures cited in 2012 by the British housing consultant Colin Wiles, one-bedroom apartments in Berlin were then selling for as little as $55,000, and four-bedroom detached houses in the Rhineland for just $80,000. Broadly equivalent properties in New York City and Silicon Valley were selling for as much as ten times higher.

http://www.forbes.com/sites/eamonnfingleton/2014/02/02/in-worlds-best-run-economy-home-prices-just-keep-falling-because-thats-what-home-prices-are-supposed-to-do/

[upaloopa]

1. Why are they supposed to fall?

If that were the case we wouldn't want to buy them. You get a mortgage and the value of the house is supposed to be going to where you owe more than it is worth? That was the problem with the subprime loans.
Bought a house in 2011 when the price bottomed out. I've gotten almost $100,000 in equity now. That is what I think prices are supposed to do.

[whatchamacallit]

2. As you have benefited from the speculative nature of the American real estate market

I don't expect you to be understanding of the damage it's done to our economy. We've been taught to view our houses as banks, and cash boxes, not homes. If people believe house prices should be whatever the (free) market allows, prices will remain out of whack with income and homes will be out of reach for most.

[upaloopa]

4. I realize more about housing and the economy than you do

that is evident. Housing is an investment. It is the one investment middle class people had until the sub prime housing bubble broke. Housing is coming back. Builders are building again. They are creating jobs. Housing is a main driver of the economy.
Yes not everyone can afford to buy a house. There are a million things people can't buy. That is life unless you want a central government to supply everything to everyone on an even scale.
No my house gaining value is not hurting the economy. I will sell it to someone and take the gain and after paying a commission I will buy a smaller house that is currently under construction. I will put down 20% of the price. I am helping create jobs with my gain a win win for me and the economy.

[whatchamacallit]

5. Runaway appreciation fueled the "ownership society" frenzy and the subprime industry

I'm not saying your house shouldn't appreciate, but if the market is out of whack with the fundamentals there will be consequences. I don't claim to be an expert, but clearly some of Germany's economic policies are geared for the common good, rather than for speculative markets. If our way is superior why do so few benefit?

[upaloopa]

7. I also pay property tax that helps educate children

I don't have and helps pay for fire and police and other county services for people I don't know.
Bankers fueled the housing bubble and people who could not afford to pay a mortgage singed up to pay anyway. Blame them not me!
At this very moment I am sitting in a county board of supervisors conference room waiting to take part in a meeting concerning federal grants to provide housing for homeless people.
It seems to me you lack a lot of real world experience and have a lot of desire to see a world were there is no suffering and nothing but happiness for all . Life isn't like that and the United States is a much different place than Germany. We are completely different societies.

[whatchamacallit]

8. I own a nice home

I'm not blaming you. I just think we could learn some things from countries more focused on creating equitable societies.

[upaloopa]

9. Until people are willing to educate themselves

and take an active part in society we will not change anything.
I think we have to look at ourselves in the mirror and not to other countries.

[KurtNYC]

6. Income properties, office buildings and the like are an investment

the house one lives in is not an investment. You would need to beat the interest on a 30-year loan (about 33 to 50%), plus property taxes, maintenance, plus a 3% to 6% commission before realizing any gain. And then factor in inflation....

"Home ownership" (which is really the bank owning the house for 30 years) is a great profit driver for banks, insurance companies, local governments and Home Depot. For the mortgage payer not so much.

[upaloopa]

10. If you are talking to me

I will sell my house in March 2015 for approximately $100,000 more than the value of the mortgage I took out in 2011. I did not pay that much in the time I owned it and I got tax deduction for the interest and taxes I paid. You can call it what you want. I call it my investment.

[backwoodsbob]

11. they shouldn't fall...but they also shouldn't rise for no reason

in a healthy economy the price of housing overall should closely coincide with inflation.
Bubble and burst pricing leads to a situation where the average person cant afford to buy on the upswing...and the same people cant qualify on the downswing.

Basically it prices the average family out of the market no matter what the market does

[Scout]

12. perhaps many were overvalued/overpriced ... and the fall is bringing them to the "normal" value

where they should be.

[badtoworse]

3. Do they quash the deal, if they think the selling price is too low?

No thanks. I'll take the free market.

[Nye Bevan]

13. Just a tiny possibility of backhanders and corruption

when the man from the government can stop your deal from going through.