steveoc
9th May 2010, 12:40 PM
Next time you are out enjoying a lager with Joe Sixpack, have a crack at asking these questions :
Q: What do you reckon an average house is worth ?
A: I dunno, $200,000 or so ?
Q: How much money do you reckon the average person has saved up in cash ?
A: Probably around $2,000 or so ?
Q: OK, now lets imagine the banks shut down and are there are no more loans. What is the average house going to sell for now ?
A: ..... (thinking about it) ....
Normally you get a blank stare on this one. Sometimes they suddenly take a red pill and come to the conclusion that a house is only worth what people can afford to pay for it in cash - which is not much at all. You can see the alarm bells going off in their heads when they do this, and denial sets in quick.
A house cannot be sell for more than people are able to pay for it.
Houses are only 'worth' huge sums of money because banks provide credit to bridge the gap. That credit inflated value has little to do with the cost of producing the house.
There is something fundamentally wrong with this picture.
Q: What do you reckon an average house is worth ?
A: I dunno, $200,000 or so ?
Q: How much money do you reckon the average person has saved up in cash ?
A: Probably around $2,000 or so ?
Q: OK, now lets imagine the banks shut down and are there are no more loans. What is the average house going to sell for now ?
A: ..... (thinking about it) ....
Normally you get a blank stare on this one. Sometimes they suddenly take a red pill and come to the conclusion that a house is only worth what people can afford to pay for it in cash - which is not much at all. You can see the alarm bells going off in their heads when they do this, and denial sets in quick.
A house cannot be sell for more than people are able to pay for it.
Houses are only 'worth' huge sums of money because banks provide credit to bridge the gap. That credit inflated value has little to do with the cost of producing the house.
There is something fundamentally wrong with this picture.