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KAI RYSSDAL: Home ownership in this country’s as high as its ever been — almost 70 percent of Americans own a house. If you’ve been reading the business pages, though, you know there’s a catch. It’s spelled subprimes. A lot of recent buyers are losing equity in their homes as the housing market fades. Commentator and economist Austan Goolsbee says if you’re one of them, it’s time to face reality.
Austan Goolsbee: When housing prices go down, there’s always a guy on your street with an insanely high price. When you say prices are down, he’s got fingers in his ears saying “la, la, la, la!”
Turns out almost everybody refuses to sell their house for less than what they paid. The explanation you hear is that they can’t afford to lose the money. Economists say they’re crazy. The fact is they’ve already lost the money. They lost it when house prices fell. Listing your house for more money is not going to change that.
One of the iron laws of economics is stuff is worth what it’s worth. Nobody cares what you originally paid. So if you ask too much, you’re setting yourself up for a fall. A big one.
Take Boston. In the early 1990s, when condo prices fell 40 percent, the people who bought high set their prices much higher than people selling identical condos they bought for less.
There was so much overpriced real estate that the entire market went into a deep freeze. More than 70 percent of the properties took longer than six months to sell.
Now that’s threatening to repeat itself all over the country. And when housing markets freeze up, it means bad, bad things for the economy. It means fewer house sales, which means fewer sales of new furniture, new stoves, and new plasma TVs.
Face it. Who likes getting up early every day and having people traipse through your bathrooms and rejecting you over and over?
So, look, let’s make a deal. Some money is better than no money. It’s better for you. It’s better for everyone. You’ll unload your house and buy something else and buy stuff to go in it.
Holding out for the high price of your dreams is not going to work and is setting us all up for a great big recession.
So get real, people. This ain’t fantasy land.
RYSSDAL: Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business. He’s also an advisor to Barack Obama’s presidential campaign.
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