patrick.net

Here's what ppl seem to be missing. If a home goes from $290K to $220K, despite the 25% drop, the actual payments on the place are not exuberant and a regular Joe family, with ordinary jobs, can make those payments. In the end, the house is owned and the family has a place for retirement. In time, it's highly likely that the delta will be made up. In addition, one person can do contract work in another city, and add a bit to paying off the mortgage quicker.

If a house goes from $800K to $600K, that 25% drop is an absolute killer for ppl, esp coupled with a job loss, who're not in high paying areas like finance, surgery, and so-forth. And thus, given the paucity of high wage earners these days, the high costs regions are an absolute risk for working families. On the other hand, would it matter so much to let's say David Letterman or Britney Spears? Probably not.

From the article:

"Mr. Mian and Mr. Sufi say, they cannot understand why the government encourages borrowing, for example, through tax deductions for mortgage interest payments.

“You need some kind of limit on where people can smoke, and you need some kind of limit on debt,” Mr. Mian said. “When there is an activity that is dangerous, you should tax it in one way or another. And instead we have a system that actively subsidizes debt.”
***
Academics often find that in Washington, their diagnoses are taken more seriously than their prescriptions."

Duh. The legislative and regulatory processes are controlled by the recipients of the misallocated resources, and they want to misallocate more to themselves, not less. Multiple patronage factors all push in the same direction: campaign finance, the revolving door, etc. Academic economists should devote more attention to political science, because we have an increasingly political economy where market forces are systematically overcome by policy choices. It isn't possible to understand the "market" without understanding the political dynamics that govern it, and even a house of cards can remain standing for a while, with the uppermost cards appearing to 'defy' gravity because they are propped up by the lower cards.

The curriculum should probably include the game of Jenga, as well:

curious2 says

Academic economists should devote more attention to political science, because we have an increasingly political economy where market forces are systematically overcome by policy choices

BTW, the London School of Economics is actually called the London School of Economics and Political Science. So I think you're spot on.

On the other hand when equity goes up which it has done the majority of time over the last 30 years in the Real Estate market your payment does not go up either and you become "paper" wealthy. If you refinance cash out and/or refi for a lower rate your payment can go down and you can have hundreds of thousands of dollars in your hand after a refi.

If you are younger with kids and many work years ahead of you lot's of homeowners refi to lower that total monthly $$ obligations.WHen the RE market is hot like it has been in SF Bay Area your equity goes up faster than you can ever save any money and if rates go down you can pull cash out and have the same or lower monthly payments.

Rin says

exuberant

exorbitant

P N Dr Lo R'

http://www.merriam-webster.com/dictionary/exuberantexuberant

exuberant
"1. : extreme or excessive in degree, size, or extent

Both exorbitant and exuberant work in this case.

mike2 says

If you refinance cash out and/or refi for a lower rate your payment can go down and you can have hundreds of thousands of dollars in your hand after a refi.

Same thing applies for non-bubble lower cost regions. One can refi on a cheaper home and lower one's payments. The end result is that one is not forced to sell, during a job loss a/o forced re-location.