QuoteAlthough "wealth" is not a good indicator of poverty either. Those stats are including house prices which unless the family wants to move to a smaller property, aren't going to be realised. A family could be living in a worthless house, on the same income, paying the same (fixed) mortgage payments and not have their lifestyle effected at all....... unless they need to move house!Measures of poverty should measure left tail, i spoke of overall wealth, which is measured by the median fairly well. It is correct that mainly the number is related to the drop in house prices. I, however, disagree with your characterization that it's irrelevant. There are various situations when you 'lose' wealth in not nominal terms. You or your spouse lost a job and dropped paying the mortgage you -- are foreclosed and you lose whatever you paid for equity in the house. Or you didn't drop the payments and your have negative equity-- you are not only paying too much for the principal, you rate is too high, it affects your cash flows. You need to move for another job -- not only you'll have a capital loss on the sale, you'll need to keep paying rent or new house mortgage and carrying cost for a very long time before this sale of the old house happens. Having a depreciated house on your balance sheet you cannot borrow more as when you had appreciating house, it affects your flow, spending, etc. This borrowing was non trivial, it was most of nominal GDP growth in the times of the house bubble. There are also hidden costs, that are delayed but inevitable. For example, government took trillions of Fannie and Freddie debt on their balance sheet and is losing hundreds of billions annually paying for the loans on these depreciated houses. For now US is just borrowing, but sooner or later taxpayers will have to pay for Fannie and Freddie debt which kind US government ram down the taxpayers throats. The loss is in PV of your future taxes, if you plan to pay taxes in US for another couple of decades.
Last edited by zerdna
on June 20th, 2012, 10:00 pm, edited 1 time in total.