It’s important for people to realize this. All those people who thought that their wealth increased as prices went up must now realize that their wealth will fall by 10-20% or more as prices fall.

The assumption that the 19 trillion is a valid assement of home asset value and that 11 trillion of it is homeowners equity, is kind of a stretch. Its like suggesting that Google at $450 can be had by every shareholder when they go to sell.

The irritating thing about stocks and real estate, is that the value of YOUR property can be determined by what the joker down the street sells his for.

Its like the guy who shows the neighbor his new 2 million dollar dog. The neighbor asks where he got the money to pay for it and the guy says “I gave the seller two one million dollar cats.”

Another thing that will start to enter into the housing equation, is not only supply of houses, but supply of buyers. The baby boomers have their houses. There is 25% less buyers behind the boomers. At these prices, they’re going to live with Mom and Dad a few more years.

“In their review of economic conditions across the nation, several members noted that high levels of business activity were severely taxing available labor resources and appeared to be constraining growth in a number of industries and parts of the country. Rising employment and incomes along with the advance in stock market prices to new highs in recent weeks were fostering elevated levels of consumer confidence and would be supporting consumer spending going forward. Anecdotal reports pointed to notably brisk retail sales during the current holiday season in many parts of the country. Sales of new automobiles had rebounded recently after moderating somewhat from an exceptionally rapid pace earlier. While recent developments provided little basis for anticipating slower growth in consumer spending, members commented that such spending could be vulnerable to adverse developments in the stock market and the attendant effects on consumer wealth and confidence; and spending for household durables could be damped by the anticipated softness in housing activity.”

http://www.federalreserve.gov/fomc/minutes/19991221.htm

Why is it that Greenspan lectured Congress on the virtues of the free market yet central planners set one of the most important economic levers, interest rates? These jokers are directly responsible for the “funny money” and they will be responsible for the fallout once the greatest credit bubble in history blows.

Mississippi, part of Alabama and Louisiana were wiped out by the hurricane surge. Many homeowners didn’t have a lot flood insurance coverage or bought it years ago and never updated the amounts, and others were told they didn’t need it because the house was above the flood zone, either by terrain or by being build on pilings. Most homeowners policies specifically exclude damage caused by wind driven water, i.e., surge. In addition, some were in the Mississippi wind damage pool for hurricane damage.

Many lost their jobs as well as their homes so even with relief provided by mortgage companies, they can’t resume payments.

I know of one of the best insured people who is letting his slab go into foreclosure as he’s been informed that it’ll be a year or so before the insurance is sorted out. He intended to build then sell but has decided to just walk away and take a job out of the area. His flood insurance, wind damage insurance and homeowners were all trying to sort out who had to pay as all he found was his porch a half a mile away so what actually took the house is unknown. Did the tornados demolish the house and the surge wash it away or did it happen in some other order.

The Gulf Coast will have foreclosures but it won’t be a big impact on the country as a whole. The assistance programs are designed to help people. In addition, there is usually a price surge as small parcels come available to be combined into larger developments. The mortgage holders will probably do okay in the long run.

Contrast this to all $500k to $1 million foreclosures with falling prices.