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"House scalpers didn't force legitimate buyers to take out huge mortgages. The "legitimate buyers" (I assume you mean people who wish to consume housing) could
by codexon 17y ago
"House scalpers didn't force legitimate buyers to take out huge mortgages. The "legitimate buyers" (I assume you mean people who wish to consume housing) could have continued to rent."
The cost of renting went up along with the boom and unsurprisingly went down with the bust. Everyone was forced to pay more except for those who already owned a home.
Where do you think the leasers got their homes? Do you think that they wouldn't raise their prices when other options were priced much higher?
"Most of the people who bought houses are also scalpers; they bought a house in the hopes that it would be worth more later. "Real estate never goes down!""
Hindsight is 20/20. During those economic conditions, you could either rent overpriced accommodations, or you could take out a mortgage with a lower % interest than how much homes were appreciating yearly. This was a ponzi scheme where the timing of the bubble was controlled by the financial giants' tolerance for risk.
If you did not join in this fiasco, you risked losing purchasing power compared to everyone else. This is equivalent to you putting your money in a 0% interest account while everyone else puts it in a 5% interest account. I am willing to bet that the majority of the people here did not know when the bubble was going to burst, including most of you who are now saying that "those dumb speculators shouldn't have bought a home back then" (see how this is bad for liquidity if you can't buy a home for 3-4 years?).
Scalping is also theoretically bad for the market. The market is not optimal when buyers are paying the maximum amount. In such a condition, you have decreased liquidity as buyers are forced to buy less since everything costs most of their money. You might just buy food and shelter, and try to be self sufficient on everything else. This is not conducive to a vibrant economy.
The market is optimal when sellers are selling at their minimum amount. The ideal market thrives on competition. Liquidity is increased and you have incentives to use the extra money to drive other sectors of the industry.
Take for example text messaging. It doesn't even cost 10 cents per message, and people would even pay 20 cents per message. But does that mean a text message is truly worth that much? Absolutely not! The phone company has lost that much interest into improving their existing services rather than trying to extract as much as they can from their consumers. Artificial scarcity only helps businesses/scalpers take advantage of the consumers.
- yummyfajitas 17y agoThe cost of renting did not go up correspondingly with cost to own. That's how we know it was a bubble. http://bigpicture.typepad.com/photos/uncategorized/2008/05/13/price_to_rent_ratio.png http://bigpicture.typepad.com/photos/uncategorized/2008/05/1... If you did not join in this fiasco, you risked losing purchasing power compared to everyone else. This is equivalent to you putting your money in a 0% interest account while everyone else puts it in a 5% interest account. Yes, I would have lost if housing turned out to be a good investment. This does not change the fact that your "legitimate buyers" were speculating. Also, if you are comparing scalping to text message prices, that analogy would only make sense if a single scalper (or a small number of scalpers) holds a monopoly over the market (either in tickets or houses). That's obviously wrong.
- codexon 17y agoOk here we go. First of all, just because the ratio went up doesn't mean that rentals didn't go up as well. Second, what are the units are that graph? 25? That's definately not 25x unless you've normalized it to the 1900s or so which is silly. That graph has an exaggerated axis. Third, the metric for price-rent ratio is rather arbitrary. How is a rental for 12 months ever equal to the cost of a house? A house is not entirely equivalent to an apartment to be compared in this manner, and the number of houses for rent is inversely related to the market price. Yes, I would have lost if housing turned out to be a good investment. This does not change the fact that your "legitimate buyers" were speculating. The point is the people who were scalping first forced an artificial panic on the system. If they did not have the power to do this, people wouldn't have been highly compelled to follow them. Therefore scalpers are bad for the market. This is equivalent to a "pump and dump" scheme which is illegal when trading equities. Also, if you are comparing scalping to text message prices, that analogy would only make sense if a single scalper (or a small number of scalpers) holds a monopoly over the market (either in tickets or houses). That's obviously wrong. No you are completely missing the point. Scalpers have at least a regional monopoly. Is text messaging a regional monopoly? Yes. Did housing speculators buy up whole plots of real estate in certain areas? Yes. Did wii buyers hold a monopoly on wiis when they bought out the limited supply in stores and put them up on ebay? Yes. That's the entire point of scalping, to create an artificial lack of demand through a monopoly.