The U.S. the economy took the average person on a roller coaster ride, convincing them of future growth due to the increase of housing prices between 2000 and 2008.
What really happened was that consumers were riding a helium balloon and failed to take air out along the way and come down before the gas ran out. Many bragged about how their house values went all the way up to the top and when the free fall came, suddenly they found themselves confused.
Housing Prices
On average housing prices rose during the 2000 to 2008 period from $125,000 to $250,000. Now the reported inflation rate in the U.S. was 2.8% over this time, which is inaccurate for most people. Simply put, housing appreciated at a rate of 6% annually from 2000 to 2008. In the United States your mortgage represented as least 65% of your disposable income on average. So, if most of your money was going to housing, the inflation rate was actually over 5% , on top of that there were unpublished statistics working against everyone. From 2000 to 2008:
1. Wage increases slowed to their worst level since the 80′s (1.5%).
2. Savings rate decreased down to almost 0%.
3. Most debt repayments were going to towards paying interest instead of home equity.
As a result of the above mentioned factors the masses actually put money into inflated houses, banks raised interest rates, while pay increases were way below inflation. These all contributed to reducing savings to nothing. If you include these items in calculating “purchasing power”, it would be more accurate to say most were losing 7% purchasing power per year. What this means is that by 2008, lack purchasing power peaked and millions of middle class could not afford anything. The fake nature of housing asset values were exposed.
It is no wonder that home prices have dropped 40% across America and the roller coaster came to a crashing end. Most of the 50% housing increase has been lost, with a potential for more.
There are factors that are killing our wealth and when your not aware and the engine fails you can’t sell in time and are left with low valued assets. Preservation assets will become the trend over the next couple of years as the economy flushes debt and waste out of the system. Many experts who really understand the economy and are not just worried about rushing into recovery, they believe that we need to come off the “drug” of debt and go through detox. Those who have accumulated and preserved cash will be able to buy cheap assets and prepare for the next bubble.
Check out the ideas of economic expert Harry S. Dent Jr who has made strong predictions about future mortgage trends. He really takes a Mastermind approach to analyzing the state of the economy minus fake optimism often fed to us by politicians and main-stream media.
Remember if it feels too good to be true, it often is…
- Ato Mensah, MastermindGrowth.com
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