# Why is home value deflation a bad thing? **URL:** \ **Category:** Great Debates\ **Created:** [September 24, 2008, 7:30pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044 "2008-09-24T19:30:16Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:07pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/21 "2008-09-24T21:07:21Z")
> [@pohjonen](#): > > No Paul, that doesn’t help. And here’s why: No one is addressing my point that incomes (for most of us) have nowhere near kept pace with the astronomical inflation in prices. That house I grew up in has inflated twenty fold. As I said, in 1980 I made 1.50 less an hour than I make today. What does that mean when inflation is taken into account? Now throw in that any old full time job in 1980 got you free health insurance, and now you pay half of your own (if you are fortunate enough to have your employer offer it at all). How does this bail out help any of that? To me, the course we are on is unsustainable NO MATTER WHAT unless these issues are addressed. People whose real incomes are diminishing yearly are in absolutely no position to purchase houses for which prices are INFLATING annually. An enormous correction is still needed… or am I crazy? The pain from deflation in no way excuses government pushing up prices so drastically, by artificially holding down interest rates. That. wasn’t done early in this decade for home ownership, it was done to keep the economy robust before the 2004 election. Your experience explains why so many people fell for these sucker loans. They wanted a house, they saw they were falling ever further behind, and the economic policy of the Bush administration gave the benefits of improved productivity to the rich, not to the worker. In 2003 they might have held out, sure that the insane prices would come down, and in 2004 they found themselves even worse off. Is it any wonder that they fell for a slick salesman telling them that singing the loan was the only way to get into a house, and that they shouldn’t worry because in a year they’d have a bundle of equity? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:15pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/22 "2008-09-24T21:15:11Z")
> [@Throatwarbler\_Mangrove](#): > > So, because in California, it’s impossible to raise taxes, it becomes necessary to artificially prop up real estate prices? > > 1. You guys deserve whatever government you elected to pass THAT law and > 2. I doubt that’s the case anywhere else. No - but it is a fact that a decrease in prices is going to kill local government. As I see **DerTrihs** has said, Prop 13 is a case of the people overruling government, led by that scumbag Howard Jarvis (may he rot in nonexistent hell.) Government knew that this was going to cause a problem, but the sheeple said “Baah, taxes are bad…” and now wonder why our schools suck. I can go on for hours about how Prop 13 is evil. And I benefit from it greatly, paying taxes on an assessment from before the bubble. I don’t think there is any place in the US where raising property taxes is going to be a simple thing to do. Especially because the drop in values is not evenly distributed. My neighborhood, being older, has had few foreclosures and based on sales prices, has had a 10% drop at most. Why should we get a big boost in taxes to cover the drop for the people who overpaid? Prices will go down - but it is not totally a good thing. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:17pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/23 "2008-09-24T21:17:11Z")
> [@Throatwarbler\_Mangrove](#): > > The way it works here, and in every other Canadian city that I’m aware of, property taxes are revenue neutral - The assessment is done independently of government budgets, and after the assessment at market value is done, the tax rate is set by simply dividing the budget by the total assessment value. That’s the way it was done in NJ - but we had modestly increasing prices when I lived there. And much better schools than in California today. ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 24, 2008, 9:20pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/24 "2008-09-24T21:20:09Z")
> [@](#): > > Why should we get a big boost in taxes to cover the drop for the people who overpaid? I…guess we’ve all resigned ourselves to that whole “Richer people pay proportionally more taxes because they benefit more from society” thing. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:22pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/25 "2008-09-24T21:22:31Z")
> [@Throatwarbler\_Mangrove](#): > > Step 1a: In the mean time, the price of housing is left to the free market. Supply and Demand ensures that there is neither over or under supply of housing. Not quite so easy. Many desirable places are built out. Builders who get one of the rare empty lots can charge premium prices in a desirable location. There was a run down shopping center in the next block which got turned into $1M crap houses (I toured the models.) Great for me, since it raised my property value, but increasing supply in a sense increased average prices. When you have a small area where the jobs are, like Silicon Valley, houses close to this are priced higher than those far away. The places that grew up 50 miles away to let people buy a big house they can afford are now hurting the most, since more people with money still can move closer, and because gas prices have increased the commuting cost. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:26pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/26 "2008-09-24T21:26:39Z")
> [@Throatwarbler\_Mangrove](#): > > I…guess we’ve all resigned ourselves to that whole “Richer people pay proportionally more taxes because they benefit more from society” thing. The reason Prop 13 passed was that those paying more in property taxes were not necessarily richer. I’m a bit richer - but nowhere near as much as my house has appreciated, but my neighbor is retired and not richer at all. Property tax caps for retired people are a really good idea, but not for anyone else. But even those who are not retired may not be able to afford the double whammy of an increased tax bill. Given that I don’t believe in home equity loans, I might get some satisfaction from looking at what my house is worth today, but it doesn’t put any cash in my pockets. BTW, business property is also covered by Prop 13, and since businesses don’t retire and move away, that really has hurt. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 9:28pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/27 "2008-09-24T21:28:30Z")
> [@SmartAleq](#): > > So far nobody’s told me any reason why this is a bad plan. It’s an excellent idea. When the founders of a startup need more money, venture capitalists don’t just lend it to them, they get equity in the company. No reason the government shouldn’t do the same. ---
**Author:** ![pohjonen](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pohjonen/32/423_2.png) [@pohjonen](https://boards.straightdope.com/u/pohjonen)\ **Post date:** [September 24, 2008, 9:30pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/28 "2008-09-24T21:30:16Z")
Well then, by all means let’s all pay higher taxes so we can bail out the mortgage holders and let housing costs continue to rise, be content with our diminishing relative incomes and the newly married couples and retirees can move into dumpsters. Sounds like a plan to me. Or, still preferably to me, we can let the cost of housing fall to affordable levels and folks could actually buy them and furnish them and improve them and spend the money left over in the economy at large. Living in a dumpster is still a dumpster, whether we have the Great Depression Part Deux or not. As I stated previously, things as they stand now are not sustainable, bail out or not. ---
**Author:** ![RyJae](https://avatars.discourse-cdn.com/v4/letter/r/9d8465/32.png) [@RyJae](https://boards.straightdope.com/u/RyJae)\ **Post date:** [September 24, 2008, 9:32pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/29 "2008-09-24T21:32:04Z")
> [@pohjonen](#): > > I need some serious convincing on this mortgage bailout thing. Is it not a fact that home prices were becoming ridiculously inflated, particularly in some areas? According to [zillow.com](http://zillow.com) the dumpy little house in a terrible neighborhood that I grew up in in Pomona California, which my parents bought for 10,000 in 1960, is now worth 278,000. Have wages escalated in California so much after I left that your average low income person could afford the mortgage for that awful house? Do McJobs there pay that well? I’m no financial genius, but I’m not an idiot either, which I would say is true for most of us trying to get a handle on this mess. Right now, my inclination is to say, let it crash, at least we would be starting out clean after the disastrous tsunami recedes. It sounds to me like the wall street people are just trying to maintain the status quo that got is here in the first place. Houses only have the value inherent in a buyer’s ability to pay for them. If prices don’t come down, or wages don’t go up (I personally make 1.50 more an hour than I did in 1981!), I don’t see anything to be gained for us in the working stiff class by the gov. buying up mortgages at their “hold to maturity” price to keep housing prices up. Someone please tell me where I’m wrong. I’m getting a headache. > **[File:USA home appreciation 1998 2006.svg](https://en.wikipedia.org/wiki/File:USA_home_appreciation_1998_2006.svg)** > > Click on a date/time to view the file as it appeared at that time. > You cannot overwrite this file. There are no pages that use this file. > The following other wikis use this file: Nice chart showing the home price appreciation just from 1998 through 2006 ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 24, 2008, 9:48pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/30 "2008-09-24T21:48:02Z")
> [@](#): > > Not quite so easy. Many desirable places are built out. Builders who get one of the rare empty lots can charge premium prices in a desirable location. There was a run down shopping center in the next block which got turned into $1M crap houses (I toured the models.) Great for me, since it raised my property value, but increasing supply in a sense increased average prices. > When you have a small area where the jobs are, like Silicon Valley, houses close to this are priced higher than those far away. The places that grew up 50 miles away to let people buy a big house they can afford are now hurting the most, since more people with money still can move closer, and because gas prices have increased the commuting cost. I fail to see how this is a counterpoint to “let supply and demand dictate house prices”? Are you proposing that everyone should be able to cheaply live in Silicon Valley? I was just talking about your ludicrous taxation scheme with a German office-mate. He finds the whole thing hilarious. Apparently in Germany, municipal governments derive most of their income from consumption taxes, and property taxes are very low. " Aside from this Proposition 13 nonsense, Why would the government want taxes to discourage people from improving and increasing the value of their property anyway? Shouldn’t that be something to be encouraged? What a bizarre system. " Yeah, I guess. ---
**Author:** ![lobotomyboy63](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lobotomyboy63/32/2900_2.png) [@lobotomyboy63](https://boards.straightdope.com/u/lobotomyboy63)\ **Post date:** [September 24, 2008, 10:07pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/31 "2008-09-24T22:07:39Z")
I don’t think it’s a bad thing for home prices to return to sane levels; in fact, I think it’s inevitable. Ever hear of tulipmania in Holland? \*At the peak of tulip mania in February 1637 tulip contracts sold for more than 20 times the annual income of a skilled craftsman. \* Seems crazy now, but some people do lurv to gamble. _People were purchasing bulbs at higher and higher prices, intending to re-sell them for a profit. However, such a scheme could not last unless someone was ultimately willing to pay such high prices and take possession of the bulbs. In February 1637, tulip traders could no longer find new buyers willing to pay increasingly inflated prices for their bulbs. As this realization set in, the demand for tulips collapsed, and prices plummeted—the speculative bubble burst. Some were left holding contracts to purchase tulips at prices now ten times greater than those on the open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid._ > **[Tulip mania](https://en.wikipedia.org/wiki/Tulip_bubble)** > > Tulip mania (Dutch: tulpenmanie) was a period during the Dutch Golden Age when contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels. The major acceleration started in 1634 and then dramatically collapsed in February 1637. It is generally considered to have been the first recorded speculative bubble or asset bubble in history. In many ways, the tulip mania was more of a then-unknown socio-economic phenomenon than a significant econo Speculation may be great while it lasts but when it crashes, somebody gets burned. I just hope it isn’t the average taxpayer. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 10:26pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/32 "2008-09-24T22:26:12Z")
> [@Throatwarbler\_Mangrove](#): > > I fail to see how this is a counterpoint to “let supply and demand dictate house prices”? Are you proposing that everyone should be able to cheaply live in Silicon Valley? Just saying that simple supply and demand does not result in stable pricing when the supply is severely limited. Long before the crash, there was a recognized problem that young people and those who weren’t high salaried engineers not being to afford to live where they work. In my town there are lots of multigeneration families, but not any more. No one came up with a solution. It is still true, since our prices aren’t going down very much - except for condos bought by those trying to find the cheapest housing. They got wiped out. About half the foreclosures listed for our town are around $250 K, while the median price excluding them is around $600 K. We had this gigantic drop in median sales price not from house prices declining so much as from the mix of houses sold. > [@](#): > > I was just talking about your ludicrous taxation scheme with a German office-mate. He finds the whole thing hilarious. Apparently in Germany, municipal governments derive most of their income from consumption taxes, and property taxes are very low. > > " Aside from this Proposition 13 nonsense, Why would the government want taxes to discourage people from improving and increasing the value of their property anyway? Shouldn’t that be something to be encouraged? What a bizarre system. " > > Yeah, I guess. He is right. Do a big renovation, and get your house price reassessed. Adding a few thousand bucks a year to your property taxes is a powerful incentive not to add a room. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 10:28pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/33 "2008-09-24T22:28:16Z")
> [@lobotomyboy63](#): > > I don’t think it’s a bad thing for home prices to return to sane levels; in fact, I think it’s inevitable. Ever hear of tulipmania in Holland? For a more recent example, try Beanie Babies. People expected to retire on the damn things, before the fad ended. But people live in neither tulips nor beanie babies, so it is a bit different. ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 24, 2008, 10:34pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/34 "2008-09-24T22:34:31Z")
> [@](#): > > Long before the crash, there was a recognized problem that young people and those who weren’t high salaried engineers not being to afford to live where they work. I don’t really understand how this is a problem. If they can’t afford it, they won’t live and work there, in which case, either the price will go down (less demand) or the companies that need them will pay them more (more supply). Isn’t that the whole point? I’m not seeing how propping up the high prices with subsidies is suppose to be a “solution”. ---
**Author:** ![JXJohns](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jxjohns/32/469_2.png) [@JXJohns](https://boards.straightdope.com/u/JXJohns)\ **Post date:** [September 24, 2008, 10:49pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/35 "2008-09-24T22:49:05Z")
> [@pmwgreen](#): > > … Now the house prices are down, everybody in the country who owns property has lost tens of thousands of dollars. If you own more property, you’ve lost more money. If you find you need 50 thousand for a medical emergency, you may now be looking at foreclosure. You realize that this is a gross exaggeration at best, right? ---
**Author:** ![A\_shameful\_cracka](https://avatars.discourse-cdn.com/v4/letter/a/ebca7d/32.png) [@A\_shameful\_cracka](https://boards.straightdope.com/u/A_shameful_cracka)\ **Post date:** [September 24, 2008, 11:18pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/36 "2008-09-24T23:18:59Z")
I’m pretty happy about it. I currently rent a house worth about 95K for $700 a month, and was worried during the housing bubble that the owner might consider kicking us out, doing some remodeling, and re-selling it or renting it for much more. Now I think he’ll be happy to continue to make some money off of this as it’s value plummets. ---
**Author:** ![Fish](https://avatars.discourse-cdn.com/v4/letter/f/bc8723/32.png) [@Fish](https://boards.straightdope.com/u/Fish)\ **Post date:** [September 24, 2008, 11:38pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/37 "2008-09-24T23:38:49Z")
Seems to me that they revised the bankruptcy laws last summer. **Somebody** saw this coming. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 24, 2008, 11:54pm UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/38 "2008-09-24T23:54:30Z")
> [@Throatwarbler\_Mangrove](#): > > I don’t really understand how this is a problem. If they can’t afford it, they won’t live and work there, in which case, either the price will go down (less demand) or the companies that need them will pay them more (more supply). Isn’t that the whole point? I’m not seeing how propping up the high prices with subsidies is suppose to be a “solution”. Sorry, we can’t move our schools to China for cheaper labor. How are schools going to pay teachers enough to live here, considering Prop 13? There have been attempts at subsidizing housing, but it hasn’t seemed to either work or keep up with demand. Plus there are plenty of engineers here to keep demand up, given the limited supply. Some rent (pretty expensive also) some live with their parents, and some are stuck paying $3.75 (cheap) and making 50 mile one way commutes. The thread is about why deflation is bad. I think I gave plenty of examples. It will happen anyway, but it hurts lots of innocent people. ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 25, 2008, 12:33am UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/39 "2008-09-25T00:33:55Z")
> [@](#): > > Sorry, we can’t move our schools to China for cheaper labor. How are schools going to pay teachers enough to live here, considering Prop 13? There have been attempts at subsidizing housing, but it hasn’t seemed to either work or keep up with demand. Plus there are plenty of engineers here to keep demand up, given the limited supply. Some rent (pretty expensive also) some live with their parents, and some are stuck paying $3.75 (cheap) and making 50 mile one way commutes. So your irrelevant tangents about China and fuel costs aside, what exactly is the end result you seek here? Reading the above, it sounds like the end result is that higher paid people who can afford to live in desirable areas will do that, and lower paid people who can’t, won’t. Isn’t that the desired outcome? Or are you suggesting that someone has an innate right to live in a desirable area just because they are teachers or nice folks or whatever? To be honest, it sounds like another fake Bush style fuck you got mine “conservative” argument for socializing the costs and privatizing the profits. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [September 25, 2008, 12:44am UTC](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044/40 "2008-09-25T00:44:12Z")
I am reminded of the story of a man who wanted to sell his dog for a million dollars and his friends laughed at him but one day the man told his friends he had finally sold his dog for a million dollars. - What? Someone gave you a million dollars for your dog? - Yup. - A million dollars in cash??!! - Well, no, he gave me two cats, each worth half a million. Something similar was going on here while everybody was going crazy selling one home and buying another. [Previous page](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044.md?page=1) [Next page](https://boards.straightdope.com/t/why-is-home-value-deflation-a-bad-thing/465044.md?page=3)