Edited 11 Sep 2017 13:09, 4 years ago, edited by MILW

It would appear "Status Anxiety" is alive and well.  The people I've known to be the smartest when it comes to finance tend to drive 5-10 year-old sedans or station wagons that can be bought for about the same amount as the depreciation on above luxury car as it exits the dealership driveway...

Status anxiety is definitely alive and well, and it's being made worse by easy access to debt. While debt can support future income and wealth, that only applies where applied sensibly. Going into tens of thousands of dollars worth of debt for a luxury car is probably never a very sensible thing to do, and it's also a dead loss. Going into huge debt purely to speculate on house prices is also not sensible, but highly lucrative, for a time.

Meanwhile in Ireland, where house prices fell 56% in their crash that ran from 2007 to about 2012, 100,000 homes are still in negative equity, even more would have lost value without wiping out all equity, rents are high, and yet there are signs of a new bubble forming. The central bank has apparently tried to keep a lid on it by insisting on deposits of at least 20% and capping mortgages of 3.5 times annual household income.

Looking at the US, Ireland and Spain, it's clear that housing bubbles tend to deflate over a period of five years or more, and trouble persists much longer than that. In Ireland, it started with monthly price dips of 0.6%, 0.8% in early 2007, and there were predictions of modest falls of 3% or so. Those employed in the finance sector always tend to understate the risks to avoid hurting market confidence. Of course, we know that what started with 0.6% dips ended up getting far worse, since by June 2009 prices had fallen 40%. Now, look at Sydney, where the market is slowing, and there have already been predictions of 10% falls. But according to street science, we're different here. Somehow, we're immune to it all.

Edited 11 Sep 2017 13:08, 4 years ago, edited by MILW

It would appear "Status Anxiety" is alive and well.  The people I've known to be the smartest when it comes to finance tend to drive 5-10 year-old sedans or station wagons that can be bought for about the same amount as the depreciation on above luxury car as it exits the dealership driveway...

Status anxiety is definitely alive and well, and it's being made worse by easy access to debt.

Meanwhile in Ireland, where house prices fell 56% in their crash that ran from 2007 to about 2012, 100,000 homes are still in negative equity, even more would have lost value without wiping out all equity, rents are high, and yet there are signs of a new bubble forming. The central bank has apparently tried to keep a lid on it by insisting on deposits of at least 20% and capping mortgages of 3.5 times annual household income.

Looking at the US, Ireland and Spain, it's clear that housing bubbles tend to deflate over a period of five years or more, and trouble persists much longer than that. In Ireland, it started with monthly price dips of 0.6%, 0.8% in early 2007, and there were predictions of modest falls of 3% or so. Those employed in the finance sector always tend to understate the risks to avoid hurting market confidence. Of course, we know that what started with 0.6% dips ended up getting far worse, since by June 2009 prices had fallen 40%. Now, look at Sydney, where the market is slowing, and there have already been predictions of 10% falls. But according to street science, we're different here. Somehow, we're immune to it all.