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You Can’t Lose What You Don’t Have

Arnold Kling echoes my experience in tracking problem properties, foreclosures and vacant houses as a community activist:

The struggling homeowner is the staple of political speeches ("we have to help struggling homeowners") but the media are not exactly filled with stories of people who lost a lot of money on their homes. Maybe because they didn't put any money down to begin with, so they have not lost anything. I suspect that news organizations are trying to find struggling homeowners to profile, but instead they are finding mostly struggling speculators.

The vapor-filled suit playing Mayor of Minneapolis, along with the City Council and State Representatives, tell us how they want help people who have lost their homes. What I see in my lower-middle-class neighborhood is chronic miscreants being tossed out of poorly-managed rental property bought by ill-equipped speculators hoping to ride the housing bubble.

Stable homeowners are indeed suffering from declining home value. The board-ups and overgrown lawns on the block compound the fundamental downward revaluation in our housing market. But declining value is not a real loss. Like every investment, you only take the loss when you sell the asset.

Homeowners have a “paper” loss. Or in most cases, a “paper” reduction in long-term accumulated equity. They’re still ahead, just not as much as they thought they were a few years ago. A mature, built-out neighborhood like NRR’s is filled with folks living here before the bubble began. We do not have blocks and subdivisions of recent construction all financed at bubble prices with shaky loans.

And there is a benefit to declining valuations: property tax goes down. This advantage is muted by the government raising tax rates.

There is suffering, for sure. But not so much of the kind that politicians talk about.