The Housing Crisis Isn’t All Bad …

For every $1 in home value lost by a seller, there is $1 saved by the buyer. No one is talking about this, but the housing crisis represents a massive transfer of wealth to the younger generation (35 years and under) from the older generation.

As Warren Buffett pointed out in this year’s letter to Berkshire Hathaway shareholders, for every house that falls in value and pushes one family into bankruptcy, another American family benefits from the lower prices as new households are created due to the younger generation graduating from college, settling down, and moving out of their parents’ houses.

So, the 50 year old that lost all of their home equity is in trouble, but the 22 year old getting married now has much more affordable housing options available, resulting in more cash in his or her wallet each month.  As Buffett put it:

Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.

No one is talking about that, though, because it’s somewhat harder to measure.  This is my point when people talk about being at the mercy of the economy … I don’t buy it because there are always intelligent things to do.  If you thought housing was going to fall years ago, you could have shorted the housing market index or construction companies.  I read one account the other day where some of the nation’s top home builders sold everything they owned, approached the private wealth management division of UBS, and put their entire net worth in high-grade bonds.  The newspapers were full every day of headlines screaming, “Housing hits new high!”  How many people took advantage of it?

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