|By Peter Atwater | Excerpted from the August 2011 Socionomist
Originally published under the title “Post-Crash Reality: Gimme Shelter”
[Ed: In this article, financial commentator Peter Atwater explains that as a deflationary mindset grows, the American housing market metamorphoses from “investment” to “good.” Here is an excerpt of Atwater’s August 2011 article.]
In their landmark 2007 paper, “The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective,” Robert Prechter and Wayne Parker noted that some economic goods can come to be viewed as investments. They cited as examples tulips in Holland in the 1630s and Beanie Babies in the 1990s. They also noted that at the time they wrote their paper, homes in the U.S. and elsewhere had “metamorphosed from economic goods into vehicles for speculation as people buy them to ‘flip’ and trade options on their purchase.” Prechter and Parker wrote:
When an item is generally viewed as a good to be used, it has a certain value because individuals know how to value it over time for their own purposes. When an item is generally viewed as an investment, it has an uncertain value because individuals do not know how it will be valued over time by others. … [In the first case, it] is an economic good to any person who buys it to use or enjoy. … [In the second case, it] is a financial asset to a person who buys it with the expectation of re-selling later it at a higher price; he does not know its future value to other people [who likewise will be speculating on it], and he pays a price that may or may not turn out to be useful in the financial context of uncertain value.1
TV shows such as “Flip That House” helped prove that at its peak in 2006/2007, the U.S. housing market had moved beyond providing utility to become a full-fledged speculative bubble. A house was not so much a home as a key to future financial rewards.
More recently, a friend in the high-end home-building industry observed that fancy woodworking has been pushed aside for “instant” hot water and variable-speed furnace fans. His point was that ostentatious luxury, or boundless aspiration, is being replaced by cost-conscious utility—even at the upper end of the market. As Prechter and Parker’s paper alluded, the housing market is changing from an investment market back to a market for a utilitarian good. …
Read this two-page article to discover what Atwater has to say regarding emerging trends in the rental and new single-family housing markets once mood turns negative at smaller degrees.
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