Less Affordable Housing In 20 Cities In 2014 Is Not Good Economic News

Apparently the essence of financial wisdom in the Western World is to learn nothing from the housing boom and bust leading into the 2008 recession. All anyone can do is simply hope for the government to somehow take us back in time to 2006.

Many of us who own homes are, of course, wishing we could think of these homes as an asset rather than a liability. I sympathize. I’m in that group with many other. But the entire way of life is toxic and we need to wish it dead, even if it is going to mean some pain to eventually be free of our illusions.

The lead sentence from Bloomberg for the story written by the weirdly appropriately-named writer Michelle Jamrisko gives the same false hope that was pushed before the crash:

Home prices in 20 U.S. cities rose in October from a year ago by the most in more than seven years, signaling the real-estate rebound will keep bolstering household wealth in 2014.

So “household wealth” is being “bolstered” in 2014, even while savings rates drop even further for American households.

The U.S. economy has grown faster than expected in recent months, and energized American shoppers are the reason why. In September, October and November, consumer spending increased faster than it has in any three-month period since the Great Recession ended.

That surge comes with an all-too-familiar side note: In order to spend more, Americans are saving less.

Workers’ incomes still aren’t rising very fast — and they’re not rising enough to keep up with the increase in spending. Consumers suddenly don’t seem to care very much about that, perhaps because they feel buoyed by a finally healing housing market, a falling unemployment rate and new optimism that the economy is shaking off its slow-growth shackles.

The nation’s savings rate fell to just above 4 percent in November, the Commerce Department reported this week. That’s closer to the low savings rates the country experienced in the mid-2000s, in the run-up to the financial crisis, than it is to the savings rates for the first few years after the recession ended.

Yes, and during the lead up to the recession, when bears would point to the low savings rate, bulls would point to household “wealth” that was all due to the property bubble. When the recession hit, how much of that household “wealth” remained?

Just like a stock market crash can eat up the gains in the market at any time, so a housing crash would make all the “household wealth” go into the negative. While this would be traumatic, it might also actually give us some affordable housing. We need a world where people understand that a home is a depreciating asset, not an investment—and never a substitute for real savings.

That worldwide scam needs to die. I thought 2008 had killed it. I was being too optimistic.