A Chill in the Economic Air.
By Jim Conley • October 30th, 2007 • Email This Post to a Friend •
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More good news on the housing market…prices are expected to decrease by 7 percent in major US markets. It baffles me that some in Brookline believe we are immune from housing price pressure. Even more so after seeing that consumer confidence ratings are in steep decline (from the New York Times).
Why, for the love if God, is Brookline town government even talking about a property tax increase proposal for May?
Why? Because when you don’t give a hoot for the public trust, you put yourself first in line. It’s the Brookline (town government) way.
Jim Conley is publisher of On Brookline.
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Economist Joseph Schumpeter came up with the expression “the creative destructionism of capitalism” that has often been used by others (including me) out of context in supporting a position. But it seems apropos when applied to housing. Yes, buying a home is an investment. But it is much more than that. It involves neighborhoods, quality of life, families, friends, etc. A purchase of a home may be decided upon even though the price seems high, at least for that purchaser’s economic situation, because the purchaser is convinced that a later purchase may require an even higher price. This is the momentum created by the real estate industry, in a sense a version of Ponzi’s scheme. Homeowners can become apprehensive when there is a price decline, especially as their equity in their “investment” seems to disappear. Take a look at graphs of home prices in the Boston area going back to, say, 1950, and notice the sharp incline in recent years. Are we happier with these big jumps in value in comparison to modest increases in the past? Do we use the equity in our homes to fund life styles (including that of the municipality) that our incomes alone cannot support? That’s fine, so long as the bubble is intact. This is where “creative destructionism” comes into play. The real estate industry’s combining with the securities markets in pushing home ownership for those who cannot afford it have pumped the bubble for their profits. But when the bubble bursts, who bears the burden?