Photo I shot last Sunday evening with camera movement, zoom lens movement and an open shutter of the exterior lights of the Dept. of Transportation Building in downtown Los Angeles.
Wednesday, May 28, 2008
Rent Control
Only four states have rent control laws and 35 ban rent control outright
----------------------------------------------------------------------
This article was sent to you by someone who found it on SFGate.
The original article can be found on SFGate.com here:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/05/27/EDAQ10SG86.DTL
---------------------------------------------------------------------
Tuesday, May 27, 2008 (SF Chronicle)
ON THE JUNE 3 BALLOT/Proposition 98 and rent control/This abuse of property rights reduces affordable housing Kris Hunt
A lot of fears have been raised in regards to the impact on rent control of Proposition 98, the eminent domain reform proposition on the June 3 ballot. Despite what you may have read or heard, Proposition 98 phases out rent control on a unit-by-unit basis but only when the current renters move out. In fact, Section 6 of Proposition 98 places critical tenant protections into the California Constitution.
One might wonder why Proposition 98 includes the phasing out of rent control. Rent control is another form of governmental abuse of property rights. Proposition 98 opposes the use of eminent domain where private property (a house, a business, a farm or a place of worship) is taken and given to another private owner to redevelop. In the case of rent control, property rights are being abused because government is forcing the property owner to subsidize the rent of an individual renter.
Rent control is an emotional issue due to California's high housing costs.
Because of that, people often fail to take a serious look at its unintended consequences; those that negatively impact the very thing that rent control hopes to provide - an adequate supply of affordable housing.
Rent control actually reduces the supply of affordable rental housing.
This makes perfect economic sense. When you reduce or remove the financial rewards to a property owner for providing rental units, that owner is less likely to provide rental housing. Rental units are often converted to condominiums to escape rent restrictions, thereby eliminating even more rental housing. If restrictions are put on conversions to condominiums, those restrictions can further reduce the general housing supply. There is also little incentive to maintain or upgrade rental property when rents are tightly controlled.
Rent control is not based on financial need. Rent control rewards those who are able to stay in their units longest, with rents often rising dramatically when units are vacated. Students, growing families, those who must relocate for a new job, seniors and the disabled who want to move closer to transportation, all can face higher rent payments when they move. People may be forced to relocate to nearby cities and pay higher rent as well because the supply of rental units in the city with rent control has been reduced.
If the goal of rent control is to provide affordable housing, it should go to those who in need of economic aid, not just anyone who happens to be renting in a rent-controlled building. There are a variety of ways to provide needs-based housing subsidies, which would allow every taxpayer to help pay the cost, not just the owner of a rent-controlled property.
Only four states have rent control laws and 35 ban rent control outright.
Those numbers say a great deal about the problems with rent control.
Proposition 98's plan of phasing out rent control as tenants move is the best approach to solving very real inequities while supporting true reform of eminent domain law in California. Please vote yes on Proposition 98.
Kris Hunt is the executive director of the Contra Costa Taxpayers Association. ----------------------------------------------------------------------
Copyright 2008 SF Chronicle
----------------------------------------------------------------------
This article was sent to you by someone who found it on SFGate.
The original article can be found on SFGate.com here:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/05/27/EDAQ10SG86.DTL
---------------------------------------------------------------------
Tuesday, May 27, 2008 (SF Chronicle)
ON THE JUNE 3 BALLOT/Proposition 98 and rent control/This abuse of property rights reduces affordable housing Kris Hunt
A lot of fears have been raised in regards to the impact on rent control of Proposition 98, the eminent domain reform proposition on the June 3 ballot. Despite what you may have read or heard, Proposition 98 phases out rent control on a unit-by-unit basis but only when the current renters move out. In fact, Section 6 of Proposition 98 places critical tenant protections into the California Constitution.
One might wonder why Proposition 98 includes the phasing out of rent control. Rent control is another form of governmental abuse of property rights. Proposition 98 opposes the use of eminent domain where private property (a house, a business, a farm or a place of worship) is taken and given to another private owner to redevelop. In the case of rent control, property rights are being abused because government is forcing the property owner to subsidize the rent of an individual renter.
Rent control is an emotional issue due to California's high housing costs.
Because of that, people often fail to take a serious look at its unintended consequences; those that negatively impact the very thing that rent control hopes to provide - an adequate supply of affordable housing.
Rent control actually reduces the supply of affordable rental housing.
This makes perfect economic sense. When you reduce or remove the financial rewards to a property owner for providing rental units, that owner is less likely to provide rental housing. Rental units are often converted to condominiums to escape rent restrictions, thereby eliminating even more rental housing. If restrictions are put on conversions to condominiums, those restrictions can further reduce the general housing supply. There is also little incentive to maintain or upgrade rental property when rents are tightly controlled.
Rent control is not based on financial need. Rent control rewards those who are able to stay in their units longest, with rents often rising dramatically when units are vacated. Students, growing families, those who must relocate for a new job, seniors and the disabled who want to move closer to transportation, all can face higher rent payments when they move. People may be forced to relocate to nearby cities and pay higher rent as well because the supply of rental units in the city with rent control has been reduced.
If the goal of rent control is to provide affordable housing, it should go to those who in need of economic aid, not just anyone who happens to be renting in a rent-controlled building. There are a variety of ways to provide needs-based housing subsidies, which would allow every taxpayer to help pay the cost, not just the owner of a rent-controlled property.
Only four states have rent control laws and 35 ban rent control outright.
Those numbers say a great deal about the problems with rent control.
Proposition 98's plan of phasing out rent control as tenants move is the best approach to solving very real inequities while supporting true reform of eminent domain law in California. Please vote yes on Proposition 98.
Kris Hunt is the executive director of the Contra Costa Taxpayers Association. ----------------------------------------------------------------------
Copyright 2008 SF Chronicle
Tuesday, May 20, 2008
Decline
YAHOO REAL ESTATE
Five Cities With Biggest Decline in Home Values
by AnnaMaria Andriotis
May 16th, 2008
With home values continuing to plummet across the country, it's become clear that the real estate meltdown is far from over.
Values for single-family homes in 14 major U.S. cities posted double-digit declines from their respective peaks, according to the Standard & Poor's/Case-Shiller Home Price Indices, which tracks prices of single-family homes. On a national level, home values are down 12% since December 2006. And according to Beth Ann Bovino, a senior economist at Standard & Poor's, they could drop another 10% by the end of the year.
"Things are accelerating downwards [and] in most cases the fall gets steeper and steeper every month," says David Blitzer, chairman of the index committee at Standard & Poor's.
The biggest culprit for this downturn: rampant speculation on property values during the past several years. "The areas that have seen a huge amount of speculation...are the ones that got nailed," says Blitzer. "The farther up prices went the farther down they've come." This was especially true in the Sun Belt region. Cities like Las Vegas, Miami and Phoenix, which are popular for either their beaches or deserts, lured investors looking for rental properties that would appreciate in value so they could later sell them to baby boomer retirees for a sizable profit, explains Danielle Babb, a real estate analyst and professor of economics and statistics Northcentral University in Arizona.
Foreclosures have also contributed to the decline in home values. During the first quarter, foreclosures were up 112% from the same period in 2007, according to RealtyTrac, which lists foreclosed properties. As a result, there's now a glut of homes for sale on the market and a lot of very nervous mortgage lenders reluctant to give out loans.
Here are the five cities that have taken the hardest hit in home values.
Las Vegas
Everyone in Vegas knows that it pays to have Lady Luck on your side. Unfortunately for home buyers, Lady Luck has come and gone. Single-family-home values in Sin City rose a jaw-dropping 135% between January 2000 and September 2006. But then the winning streak ended. Home values have fallen 24.5% from their peak, the largest decline in the nation, says Blitzer.
Of course, the tables could always turn. "It's still one of the fastest growing cities...and one of the strongest economies in the nation," says Kendra Todd, real estate broker and host of HGTV's "My House is Worth What?"
Miami
Miami may be best known for its beaches, nightlife and art scene, but it has recently gained another, albeit dubious, distinction: It's believed to have the highest number of vacant condos in the country, according to the National Association of Realtors.
It wasn't just Miami's condo market that experienced a boom and bust; single-family homes also took a dramatic hit. Speculators who couldn't afford to invest in Miami's pricey luxury condos bought up the more affordable single-family homes in the city, only to abandon them when things got rough, says Standard & Poor's chief economist, David Wyss. That's helped push values of single-family homes 22% lower. "[Miami] doesn't have quite the biggest decline, but it's dropped very far very fast," says Blitzer.
Phoenix
Tumbleweeds aren't exactly taking over the streets of Phoenix, but the city has seen quite an exodus from a couple of years ago when speculators and real estate developers descended on it en masse. More than 67,100 single-family homes were built in Phoenix between 2000 and 2006, according to the Census Bureau, with home values rising by 127%.
Once home values started to unravel, however, speculators started abandoning their rental and investment properties. "People will go to much longer lengths to avoid defaulting on a primary residence than on a secondary home," says Wyss. Now, home values are down 24% from their peak.
Los Angeles
Not only has suburban sprawl added to L.A's traffic problems, but it's also a big reason home prices here have fallen by 22% since their October 2006 peak.
Homes that were located as far away as a one- or two-hour drive from the city's center were being pitched to buyers as properties whose values would appreciate as fast as those in the city, says Babb. However, that never happened, she says.
San Diego
Strong job growth, great weather and a smattering of palm trees: Who wouldn't want to live in San Diego? But what makes a place desirable also tends to make it more expensive. Home values here rose by 150% between January 2000 and December 2005. At its peak, this city had the highest ratio (14 to 1) of median home prices vs. median incomes in the country. Homes here were worth about 14 times the amount of money owners made each year, says Wyss. The national average was 3.4 to 1 — even at the peak of the boom in 2006, he says.
"The expectations for this city — that it was employing rapidly and that everyone wants to move here — got way too high," says Wyss. Home values are now 24% below the peak
Five Cities With Biggest Decline in Home Values
by AnnaMaria Andriotis
May 16th, 2008
With home values continuing to plummet across the country, it's become clear that the real estate meltdown is far from over.
Values for single-family homes in 14 major U.S. cities posted double-digit declines from their respective peaks, according to the Standard & Poor's/Case-Shiller Home Price Indices, which tracks prices of single-family homes. On a national level, home values are down 12% since December 2006. And according to Beth Ann Bovino, a senior economist at Standard & Poor's, they could drop another 10% by the end of the year.
"Things are accelerating downwards [and] in most cases the fall gets steeper and steeper every month," says David Blitzer, chairman of the index committee at Standard & Poor's.
The biggest culprit for this downturn: rampant speculation on property values during the past several years. "The areas that have seen a huge amount of speculation...are the ones that got nailed," says Blitzer. "The farther up prices went the farther down they've come." This was especially true in the Sun Belt region. Cities like Las Vegas, Miami and Phoenix, which are popular for either their beaches or deserts, lured investors looking for rental properties that would appreciate in value so they could later sell them to baby boomer retirees for a sizable profit, explains Danielle Babb, a real estate analyst and professor of economics and statistics Northcentral University in Arizona.
Foreclosures have also contributed to the decline in home values. During the first quarter, foreclosures were up 112% from the same period in 2007, according to RealtyTrac, which lists foreclosed properties. As a result, there's now a glut of homes for sale on the market and a lot of very nervous mortgage lenders reluctant to give out loans.
Here are the five cities that have taken the hardest hit in home values.
Las Vegas
Everyone in Vegas knows that it pays to have Lady Luck on your side. Unfortunately for home buyers, Lady Luck has come and gone. Single-family-home values in Sin City rose a jaw-dropping 135% between January 2000 and September 2006. But then the winning streak ended. Home values have fallen 24.5% from their peak, the largest decline in the nation, says Blitzer.
Of course, the tables could always turn. "It's still one of the fastest growing cities...and one of the strongest economies in the nation," says Kendra Todd, real estate broker and host of HGTV's "My House is Worth What?"
Miami
Miami may be best known for its beaches, nightlife and art scene, but it has recently gained another, albeit dubious, distinction: It's believed to have the highest number of vacant condos in the country, according to the National Association of Realtors.
It wasn't just Miami's condo market that experienced a boom and bust; single-family homes also took a dramatic hit. Speculators who couldn't afford to invest in Miami's pricey luxury condos bought up the more affordable single-family homes in the city, only to abandon them when things got rough, says Standard & Poor's chief economist, David Wyss. That's helped push values of single-family homes 22% lower. "[Miami] doesn't have quite the biggest decline, but it's dropped very far very fast," says Blitzer.
Phoenix
Tumbleweeds aren't exactly taking over the streets of Phoenix, but the city has seen quite an exodus from a couple of years ago when speculators and real estate developers descended on it en masse. More than 67,100 single-family homes were built in Phoenix between 2000 and 2006, according to the Census Bureau, with home values rising by 127%.
Once home values started to unravel, however, speculators started abandoning their rental and investment properties. "People will go to much longer lengths to avoid defaulting on a primary residence than on a secondary home," says Wyss. Now, home values are down 24% from their peak.
Los Angeles
Not only has suburban sprawl added to L.A's traffic problems, but it's also a big reason home prices here have fallen by 22% since their October 2006 peak.
Homes that were located as far away as a one- or two-hour drive from the city's center were being pitched to buyers as properties whose values would appreciate as fast as those in the city, says Babb. However, that never happened, she says.
San Diego
Strong job growth, great weather and a smattering of palm trees: Who wouldn't want to live in San Diego? But what makes a place desirable also tends to make it more expensive. Home values here rose by 150% between January 2000 and December 2005. At its peak, this city had the highest ratio (14 to 1) of median home prices vs. median incomes in the country. Homes here were worth about 14 times the amount of money owners made each year, says Wyss. The national average was 3.4 to 1 — even at the peak of the boom in 2006, he says.
"The expectations for this city — that it was employing rapidly and that everyone wants to move here — got way too high," says Wyss. Home values are now 24% below the peak
Thursday, May 15, 2008
Money
Can Money Buy Happiness?
By Arthur C. Brooks From the May/June 2008 Issue
http://american.com/archive/2008/may-june-magazine-contents/can-money-buy-happiness
Money doesn’t buy happiness, but success does. Capitalism, moored in values of hard work, honesty, and fairness, is key.
On July 23, 2000, a forty-two-year-old forklift operator in Corbin, Kentucky, named Mack Metcalf was working a 12-hour nightshift. On his last break, he halfheartedly checked the Sunday paper for the winning Kentucky lottery numbers. He didn’t expect to be a winner, of course—but hey, you never know.
Mack Metcalf’s ticket, it turned out, was the winner of the $65 million Powerball jackpot, and it changed his life forever. What did he do first? He quit his job. “I clocked out right then, and I haven’t been back,” he later recounted. In fact, his first impulse was to quit everything, after a life characterized by problem drinking, dysfunctional family life, and poorly paid work. “I’m moving to Australia. I’m going to totally get away. I’m going to buy several houses there, including one on the beach,” he told Kentucky lottery officials.
Metcalf never worked again. But he never moved to Australia. Instead he bought a 43-acre estate with an ostentatious, plantation-style home in southern Kentucky for more than $1 million. There, he spent his days pursuing pastimes like collecting expensive cars and exotic pets, including tarantulas and snakes.
Trouble started for Metcalf as soon as he won the lottery. Seeing him on television, a social worker recognized him as delinquent for child support from a past marriage, resulting in a settlement that cost him half a million dollars. A former girlfriend bilked him out of another half million while he was drunk. He fell deeper and deeper into alcoholism and became paranoid that those around him wanted to kill him. Racked with cirrhosis of the liver and hepatitis, he died in December 2003 at the age of forty-five, only about three years after his lottery dream had finally come true. His tombstone reads, “Loving father and brother, finally at rest.”
Did millions of dollars bring enduring happiness to Mack Metcalf? Obviously not. On the contrary, those who knew him blame the money for his demise. “If he hadn’t won,” Metcalf’s former wife told a New York Times reporter, “he would have worked like regular people and maybe had 20 years left. But when you put that kind of money in the hands of somebody with problems, it just helps them kill themselves.”
So what’s the moral of the story? Is money destined to make us miserable? Of course not. Mack Metcalf’s sad case is surely an aberration. If you hit the lottery, it would be different. You would give philanthropically and do all kinds of fulfilling things. Similarly, if your career suddenly took off in a fantastic way and you earned a great deal of money, you would get much happier. And what is true for the parts must also be true for the whole: When America experiences high rates of economic growth, it gets happier. America is not a nation of Mack Metcalfs, and money is a smart first strategy for attaining a higher gross national happiness.
Right?
You’ve heard the axiom a thousand times: Money doesn’t buy happiness. Your parents told you this, and so did your priest. Still, if you’re like me, you would just as soon see for yourself if money buys happiness. People throughout history have insisted on striving to get ahead in spite of the well-worn axiom. America as a nation has struggled and striven all the way to the top of the world economic pyramid. Are we suffering from some sort of collective delusion, or is it possible that money truly does buy at least a certain amount of happiness?
Americans have on average gotten much richer over the past several decades than they were in previous generations. The inconvenient truth, however, is that there has been no meaningful rise in the average level of happiness.
In 1972, 30 percent of Americans said they were very happy, and the average American enjoyed about $25,000 (in today’s dollars) of our national income. By 2004, the percentage of very happy Americans stayed virtually unchanged at 31 percent, while the share of national income skyrocketed to $38,000 (a 50 percent real increase in average income).
You've heard the axiom a thousand times: Money doesn't buy happiness. Still, if you're like me, you would just as soon see for yourself if money buys happiness.
The story is the same in other developed countries. In Japan, real average income was six times higher in 1991 than it was in 1958. During the post–World War II period, Japan was transformed at unprecedented speed from a poor nation into one of the world’s richest countries. But the average happiness of a Japanese citizen, measured on a scale of 1–4, stayed exactly the same at 2.7.
In some countries, there is even some evidence that economic growth can create unhappiness. This is generally the case for nations experiencing rapid and chaotic development and thus opportunities for great wealth for the first time. Post-Soviet Russia is an example of this phenomenon. In the 1990s, after the fall of the Soviet Empire, a few entrepreneurs made vast fortunes in markets for oil and other primary resources. Yet post-Soviet Russia is a miserable place in which only about one in five citizens say they are very happy about their lives. Some development economists believe that cases of a few lucky entrepreneurs suddenly amassing large fortunes raised unreasonable expectations among ordinary Russians, creating a sense of extreme unfairness and leaving them deeply dissatisfied with their meager lot. And in this way, money created unhappiness.
So individual countries don’t seem to get much happier as they get richer. But are rich countries happier than poor countries?
The answer to this question depends on how poor a “poor country” is. People in poor countries where much of the population lives below subsistence level are much unhappier than people in rich countries, on average. International comparative studies of happiness consistently place the poorest nations of the world—especially the countries of sub-Saharan Africa—at the very bottom.
In 2006, one study ranking countries in terms of happiness found that Zimbabwe and Burundi were the unhappiest places on earth. And this makes sense, of course: It is ridiculous to imagine that illiteracy, high child mortality, and the threat of starvation are any more pleasant or bearable to a Burundian than they would be to an American. But once countries get past the prosperity level that solves large-scale health and nutrition problems, income disparity pales in comparison with other factors in predicting happiness, such as culture and faith.
For example, compare Mexico and France. The cost-of-living difference between the two nations is vast, so economists don’t compare raw income; rather, they compare the “purchasing power” of citizens. In Mexico—a nation in which most people live above the level of subsistence but still are much poorer than residents of the United States or Europe—the average purchasing power was about a third what it was in France in 2004. And yet Mexicans, in aggregate, are happier than the French. In Mexico, 63 percent of adults said they were very happy or completely happy. In France, only 35 percent gave one of these responses.
America as a nation has struggled and striven all the way to the top of the world economic pyramid. Are we suffering from some sort of collective delusion, or is it possible that money does buy at least a certain amount of happiness?
It might be tempting to dismiss the happiness of Mexicans as delusional or a reflection of the fact that most Mexicans have no idea what life with material wealth is like. But this would be a mistake: There is simply no evidence that Mexicans lack an understanding of true happiness compared to the French. A more reasonable conclusion is that Mexican happiness—and French unhappiness—are caused in large measure by forces other than money.
American communities are like countries when it comes to happiness. Like happy Mexico and unhappy France, the happiness of American communities—all of which are above the level of subsistence—depends very little on their comparative prosperity. There are abundant examples of unhappy high-income communities and happy low-income communities. Take eastern Tennessee (which includes the cities of Chattanooga and Knoxville, but is mostly rural), where people are 25 percent likelier than people living in tony San Francisco to say they are very happy, despite earning a third less money on average. Obviously, it is more expensive to live in San Francisco than it is to live in Tennessee, but San Franciscans still enjoy more than 30 percent more disposable income.
Like nations and communities, as long as they don’t start out dangerously impoverished, individuals get little or no extra happiness as they get richer—even massively richer. In a classic 1978 study, two psychologists interviewed 22 major lottery winners and found that the joy of sudden wealth wore off in a few months. Further, lottery winners have a harder time than the rest of us enjoying life’s prosaic pleasures: watching television, shopping, talking with friends, and so forth. It’s as if the overwhelming experience of winning the lottery dulls the enjoyable flavors of ordinary life.
This story opened with the sad tale of Mack Metcalf. In truth, it doesn’t necessarily destroy your life to win the lottery, as it evidently did his, but it won’t make your life better either.
So it’s true: Money doesn’t bring enduring happiness for countries, communities, or individuals, except perhaps when people start out in abject poverty. Why not? The answer has to do with what psychologists call “adaptation.” Humans tend to adapt psychologically to their circumstances—including their monetary circumstances—and do so very quickly.
Perhaps you’ve walked into a chain-smoker’s home and wondered how on earth he could stand to live with such a stench. The answer, of course, is that he is used to it. For the most part, the same is true of economic gains and losses in our lives: They give us pleasure or pain when they happen, but the effect wears off very quickly. Adaptation makes money unsatisfying per se because we get used to it quickly. Almost immediately, an increased income becomes the new “normal.”
For individuals, communities, and nations, economic growth is like being on a treadmill, and getting richer is like speeding up the treadmill: We never get any closer to bliss.
According to the great economist Adam Smith, an early proponent of the benefits of pursuing personal economic interests for the common good, “the mind of every man, in a longer or shorter time, returns to its natural and usual state of tranquility. In prosperity, after a certain time, it falls back to that state; in adversity, after a certain time, it rises up to it.”
Indeed, economists even refer to our tendency to adapt as the “hedonic treadmill.” They have found ingenious ways to illustrate how it works. In 1978, for example, researchers presented a sample of adults with a list of 24 big-ticket consumer items (a car, a house, international travel, a swimming pool, and so on). They were asked how many of these items they currently possessed; they were also asked, “When you think of the good life—the life you’d like to have—which of the things on this list, if any, are part of the good life as far as you are personally concerned?”
Inevitably, people felt that the “good life” required more things than they currently possessed. Among the people between 30 and 44 years old, the average number of items owned was 2.5, while the ideal number was 4.3. The same people were interviewed 16 years later, in 1994, and presented with the same list. Naturally, most people had more items; the ones formerly in their 30s and early 40s (now in the next age category, 45 to 59 years old) had 3.2 items, on average. They were closer to the good life, right? Wrong. Their requirements for the good life had now shifted, to 5.4 items. In other words, after 16 years and lots of work, the “good life” deficit had stayed almost exactly the same. The more stuff you have, the more you want.
Lottery winners have a harder time than the rest of us enjoying life's prosaic pleasures: watching television, shopping, talking with friends, and so forth.
Money may not buy happiness, but there is one important way in which money and happiness are related: At any given moment, richer individuals within a country tend to be happier than poorer folks. In 2004, Americans earning more than $75,000 per year were more than twice as likely to say they were very happy than those earning less than $25,000. One study found that when happiness was measured on a 1–3 scale (where 3 was happiest), Americans in the bottom 10 percent of earners in the mid-1990s had an average happiness score of 1.94; those in the middle of the income distribution had a score of 2.19; and those in the top 10 percent scored 2.36.
This is strange, because we know that money by itself doesn’t bring much happiness. Many economists look at these facts and conclude that though we really don’t care about having money for its own sake, we do care about having more money than others. In other words, my money only makes me happy when I notice that I am richer than you. Or that you are poorer than I, of course. (Like the old saying goes, “It’s not enough to succeed—your friends have to fail, too.”)
Some studies appear to back up this idea. For example, in one experiment from the early 1990s, human subjects were presented with two job options, both at magazines. At Magazine A, they would earn $35,000 while their colleagues earned $38,000. At Magazine B, they would earn $33,000 while their colleagues earned $30,000. Most of the participants chose the higher-paying job at Magazine A—the rational choice. However, two-thirds said that, notwithstanding their choice, they would be happier at Magazine B.
In another study involving faculty, staff, and students at Harvard University, participants were asked to choose between earning $50,000 per year while everyone else earned $25,000, or earning $100,000 per year while others made $200,000. The researchers stipulated that prices of goods and services would be the same in both cases, so a higher salary really meant being able to own a nicer home, buy a nicer car, or do whatever else they wanted with the extra money. But those materialistic perquisites mattered little to most people: 56 percent chose the first option, hypothetically forgoing $50,000 per year simply to maintain a position of relative affluence.
Could it be that what we care most about is not material comforts, but one-upsmanship? Perhaps out of our primeval past comes the urge to demonstrate that we are better than others. A hundred thousand years ago, it would have given us happiness to have more animal skins than the troglodyte in the next cave; this would help ensure mating prospects, which would keep our genetic lines going. Still programmed in this way, we get unexplainable pleasure from having a better office than our coworkers and a bigger house than the guy next door, even if we don’t “need” the space.
This theory may sound good, and it is quite common to hear, but it is not the explanation best supported by the evidence. Rather, what the data tell us is that richer people are happier than poorer people because their relative prosperity makes them feel successful. Think for a moment about your last big pay raise. Why did you feel such joy over it? Most likely, it was because of what your higher pay represented to you—evidence that you had succeeded, that you had created value. That’s why you enjoyed the raise more when you first were offered it than when you started spending it. It is success (not money) that we really crave.
Imagine two people who are the same in income as well as in education, age, sex, race, religion, politics, and family status. One feels very successful and the other does not. The one who feels successful is about twice as likely to be very happy about his or her life than the one who does not feel successful. And if they are the same in perceived success but one earns more than the other, there will be no happiness difference at all between the two.
The upshot: If you and I feel equally successful but you make four times as much as I do, we will be equally happy about our lives. Of course, successful people make more money than unsuccessful people, on average. But it is the success—not the money per se—that is giving them the happiness. I have no doubt that some people do get pleasure from lording their higher incomes over others. But the evidence says this is not the biggest reason that having more than others gives us happiness.
Financial status is the way we demonstrate to others (and ourselves) that we are successful—hence the fancy watches, the expensive cars, and the bespoke suits. We use these things to show other people not just that we are prosperous, but that we are prosperous because we create value.
There is nothing strange about measuring our success with money; we measure things indirectly all the time. I require my students to take exams not because I believe their scores have any inherent value, but because I know these scores correlate extremely well with how much they have studied and how well they understand the material. Your doctor draws your blood to check your cholesterol not because blood cholesterol is interesting in and of itself, but because it measures your risk of having a heart attack or a stroke. In the same way, we measure our professional success with green pieces of paper called “dollars.”
What scholars often portray as an ignoble tendency—wanting to have more than others—is really evidence that we are driven to create value. Wanting to create value is a virtue, not a vice. The fact that it also brings us happiness is a tremendous blessing.
Have you ever wondered why rich entrepreneurs continue to work so hard? Perhaps you’ve said, “If I had a billion dollars, I’d retire.” This is what Mack Metcalf actually did when he won the lottery. But if he had earned that money doing something creative and productive, things would almost certainly have gone differently for him. People who succeed at what they do tend to keep doing it. The drive to succeed, as opposed to just having more money than others, explains why the super-rich—who already have so much more than virtually everybody—continue to work.
Americans have on average gotten much richer over the past several decades than they were in previous generations. But there has been no meaningful rise in the average level of happiness.
If there is a downside to success, it is that it appears to set the bar high and keep it there. For a star quarterback who throws twice as many touchdowns each season as the league average, it is a letdown for him and his fans when he has a year that is only a little above average. The more you succeed, the more you need to succeed to feel happy.
Take the case of billionaire Larry Ellison, founder of Oracle. The world’s 14th-richest man, he would need to spend more than $30 million per week, or $183,000 per hour, just to avoid increasing his wealth. Further, he would have to spend it on items with no investment qualities, meaning that, unless he sets his money on fire, or (better yet) gives it away, he simple cannot not be filthy rich. Yet he continues to slave away, earning billion after billion. Being rich, and having more than the average Joe, simply cannot be driving Larry Ellison. It is the will to succeed and create value at greater and greater heights.
Who enjoys the benefits created from the slaving of Bill Gates (worth $58 billion and counting), Warren Buffett ($62 billion), and all of America’s other success-addicted, ultra-rich entrepreneurs? We all do: As long as fortunes are earned—as opposed to stolen, squeezed from governments, or otherwise extorted from citizens—this is good for all of us.
Oracle has not made Larry Ellison a rich man without any benefit to society. The firm currently has tens of thousands of employees, people with well-paying jobs to support their families. The company has introduced technology that has benefited all parts of the economy, and it has paid billions to its shareholders. And we can’t forget that Oracle has rendered generously unto Caesar, year after year: In 2007 alone, it paid $1.2 billion in corporate taxes, totally apart from the personal taxes paid by Ellison and his employees.
Money is a measure of success, and a handy one at that. But there is a dark side to this fact: People tend to forget that money is only a measure. Some people focus on money for its own sake, forgetting what really brings the happiness.
This is not really a shocking idea, to be sure: We often mistake indirect measures for the actual phenomena we care about. Take, for example, standardized tests in public schools. The purpose of administering them, at least originally, was to see whether schools were providing an adequate education to the majority of their students. When the students at a particular school perform poorly, on average, the school faces sanctions—thus the teachers have incentives to “teach to the test,” focusing on preparing students to take the test instead of teaching the content the test is supposed to measure. There is evidence that this is really taking place. Obviously, it is problematic and ironic if, in order to score higher on the measure of success, we degrade true education.
Just as teaching to the test leads to inferior education, working only for the money can lead to an unhappy life. No doubt you have met people who appear to be trapped in an unsatisfying cycle of materialism and unhappiness. These people confuse money for what it is supposed to measure, and thereby maximize the wrong thing. Among other things, they leave out of the equation all of the kinds of success—in our family lives, in our spiritual lives, in our friendships—that money does not measure. And even their work choices reflect the sad mistake of forgoing what they love doing for what brings in the most monetary compensation. The evidence on happiness is clear that we should avoid the measurement error of materialism.
In some countries, there is even some evidence that economic growth can create unhappiness.
So why do so many people fall prey to this error? One explanation—a timeless hit for critics of American-style capitalism—is that our commercial culture fosters it. Relying as it does on an unending stream of cash, it creates a cleavage for us between true value creation and the symbols of it: cash, and the stuff it can buy.
But before singling out the American freemarket system for creating this confusion, note that capitalism is not the only culprit— far from it. Governments encourage this measurement error even more egregiously. Remember Mack Metcalf: There is no doubt that he played the lottery—the government-monopoly-controlled lottery—in the belief that it would enhance his happiness if he won. Almost everyone believes this: How many times in your life have you been asked what you would do if you won the lottery? Have you ever said, “I would start by being exploited by manipulative friends and family, and then maybe go into an alcoholic spiral—and then I’d probably die an untimely and tragic death”? No, you list things you imagine you would like to do: go back to school, take vacations, buy homes in warm places, and so on.
What is going on here? On the one hand, you possess anecdotal evidence about cases like Metcalf’s. On the other hand, you are being told by those who are ethically and constitutionally bound to represent your interests—politicians and bureaucrats—that easy money will give you happiness. The New Jersey State Lottery’s slogan is “Give Your Dreams a Chance.” My own state of New York drew in gamblers for years with, “All you need is a dollar and a dream.” No doubt your state makes a similar claim.
But easy money will not bring you happiness—earned success will (and in many cases that earned success will also bring you money). It is simply inconceivable that your state lottery commissioner does not understand this fact at some level. Yet for the sheer sake of raising money for its own purposes, your government perpetuates this cognitive error. President Franklin Roosevelt once said, “Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.” How things have changed! Today, government officials eviscerate the very ideal of achievement while exploiting our citizens.
I am not advocating an end to legal gambling here. While I personally have no use for it, I understand that gambling is an enjoyable diversion for some. Furthermore, I believe there is a lot of benefit to protecting our freedom to make our own decisions about our resources, even including the freedom to confuse money and success. But it is astonishing that the government—for no other reason than monopolistically vacuuming money out of its own citizens—should abet this confusion and lower our happiness.
Mexican happiness—and French unhappiness—are caused in large measure by forces other than money.
How could the government make things better for us instead of worse? Here’s an idea: It could tax away our incomes at very high rates so that money and success were no longer so highly correlated. Then, that money (if we still bothered to earn it) could be spent on public goods and services instead of what we would have spent it on, such as big houses and other ostentatious displays of our success. We would be happier if we were forced out of the consumers’ arms race that we have (literally) bought into. And as a bonus, we could enjoy all the good things the government would buy. According to one prominent economist, “We could spend roughly one-third less on consumption—roughly $2 trillion per year—and suffer no significant reduction in satisfaction. Savings of that magnitude could help pay for restoring our infrastructure, for cleaner air and water, and a variety of other things.” It’s so simple!
Unfortunately, this idea is misguided. Although consumerism does not buy happiness, government spending does not either. On the contrary, more government spending makes us less happy in general. Over the past 30 years, Americans have had increasing levels of money taxed away and spent—at least ostensibly—on them. In 1972, the federal government devoted about $4,300 to each American (in 2002 prices). By 2002, the level of spending had risen to $6,900 per person. Yet we have not gotten any happier. In 1972, 30.3 percent of Americans said they were very happy. In 2002, that percentage was still exactly 30.3 percent.
Even worse, when we correct for changing household income levels and the passage of time, higher government spending turns out to be pushing average happiness down, not up. Consider that, while a $1,000 increase in per-capita income is associated with a 1.24 percent drop in the percentage of Americans saying they are not too happy, a $1,000 increase in federal government revenues per person is associated with a 2.91 percent increase in the percentage saying this.
In other words, private prosperity brings us up, but government spending brings us back down. For every dollar in increased GDP that the government taxes away and spends, there is a higher net unhappiness level among the population than if that money had never been earned at all. Why does government spending diminish our happiness so significantly? There are a number of possible explanations. First, in some cases the spending goes to things that make us miserable, such as the Internal Revenue Service. Second, government spending reminds us of how our economic freedoms are abridged, being paid for as they are with taxes. Third, government spending, for some—the nonworking poor, in particular—creates misery, because the people who are supposed to benefit t become dependent on government programs.
Our market system, which often rewards success with dollars, can create the tendency to confuse success itself with money. But giving more money to the government will not fix this; on the contrary, our government tends to exacerbate the problem with its money-making schemes (like the lottery), and it would only make things worse for us if it tried to adjust our values through taxation and redistributive spending. The moral confusion of materialism is one best left to ourselves, our families, our communities, and our faiths to resolve.
Although consumerism does not buy happiness, government spending does not either. On the contrary, more government spending makes us less happy in general.
This is hardly an original observation on my part. Alexis de Tocqueville wrote in his 1835 classic Democracy in America about the tendency toward “excessive individualism” in an atomistic American society. Tocqueville noted, however, that the remedy lay not in reordering the American system, but in the institutions of civil society: families, churches, charities, and friendships, which are the connective tissue between people that help us to avoid errors in our values. In other words, markets are not enough—we need morality as well, and the institutions that make it possible to express this morality.
Free markets allow us to live the way we want to live—giving most people maximum buying power, and allowing citizens to find jobs that match their skills and passions.
How we use this power and freedom is up to us, and depends on our values: We can make decisions that lead to happiness, or we can make decisions that make us miserable. But to throw out free markets because capitalism does not bring happiness directly would be senseless: It would be like trashing your computer because it didn’t make your coffee.
What about the losers in a capitalistic economy? Doesn’t a competitive market system make it harder for people unable to participate effectively in the market system to pursue happiness like the rest of us? The answer might be yes, but only if we are bereft of our core values of charity and caring for others. The fact that some sick or handicapped or otherwise-challenged people are miserable because they cannot provide for themselves in a free-market system does not mean there is something wrong with our system—it means there is something wrong with our morals. In a moral society, these people should be aided by the rest of us in a way that preserves dignity and avoids dependence.
The fact that money doesn’t buy happiness is no indictment of capitalism. On the contrary, capitalism is the best system to allow people to succeed on their merits in the economy—and we know that it is success that truly does bring happiness. Capitalism, moored in proper values of honesty and fairness, is a key to our gross national happiness, and we should defend it vigorously.
Arthur C. Brooks is a visiting scholar at the American Enterprise Institute and a professor at Syracuse University. This is adapted from “Gross National Happiness” (Basic Books).
Illustration by Aaron Staples, with images by istockphoto.
By Arthur C. Brooks From the May/June 2008 Issue
http://american.com/archive/2008/may-june-magazine-contents/can-money-buy-happiness
Money doesn’t buy happiness, but success does. Capitalism, moored in values of hard work, honesty, and fairness, is key.
On July 23, 2000, a forty-two-year-old forklift operator in Corbin, Kentucky, named Mack Metcalf was working a 12-hour nightshift. On his last break, he halfheartedly checked the Sunday paper for the winning Kentucky lottery numbers. He didn’t expect to be a winner, of course—but hey, you never know.
Mack Metcalf’s ticket, it turned out, was the winner of the $65 million Powerball jackpot, and it changed his life forever. What did he do first? He quit his job. “I clocked out right then, and I haven’t been back,” he later recounted. In fact, his first impulse was to quit everything, after a life characterized by problem drinking, dysfunctional family life, and poorly paid work. “I’m moving to Australia. I’m going to totally get away. I’m going to buy several houses there, including one on the beach,” he told Kentucky lottery officials.
Metcalf never worked again. But he never moved to Australia. Instead he bought a 43-acre estate with an ostentatious, plantation-style home in southern Kentucky for more than $1 million. There, he spent his days pursuing pastimes like collecting expensive cars and exotic pets, including tarantulas and snakes.
Trouble started for Metcalf as soon as he won the lottery. Seeing him on television, a social worker recognized him as delinquent for child support from a past marriage, resulting in a settlement that cost him half a million dollars. A former girlfriend bilked him out of another half million while he was drunk. He fell deeper and deeper into alcoholism and became paranoid that those around him wanted to kill him. Racked with cirrhosis of the liver and hepatitis, he died in December 2003 at the age of forty-five, only about three years after his lottery dream had finally come true. His tombstone reads, “Loving father and brother, finally at rest.”
Did millions of dollars bring enduring happiness to Mack Metcalf? Obviously not. On the contrary, those who knew him blame the money for his demise. “If he hadn’t won,” Metcalf’s former wife told a New York Times reporter, “he would have worked like regular people and maybe had 20 years left. But when you put that kind of money in the hands of somebody with problems, it just helps them kill themselves.”
So what’s the moral of the story? Is money destined to make us miserable? Of course not. Mack Metcalf’s sad case is surely an aberration. If you hit the lottery, it would be different. You would give philanthropically and do all kinds of fulfilling things. Similarly, if your career suddenly took off in a fantastic way and you earned a great deal of money, you would get much happier. And what is true for the parts must also be true for the whole: When America experiences high rates of economic growth, it gets happier. America is not a nation of Mack Metcalfs, and money is a smart first strategy for attaining a higher gross national happiness.
Right?
You’ve heard the axiom a thousand times: Money doesn’t buy happiness. Your parents told you this, and so did your priest. Still, if you’re like me, you would just as soon see for yourself if money buys happiness. People throughout history have insisted on striving to get ahead in spite of the well-worn axiom. America as a nation has struggled and striven all the way to the top of the world economic pyramid. Are we suffering from some sort of collective delusion, or is it possible that money truly does buy at least a certain amount of happiness?
Americans have on average gotten much richer over the past several decades than they were in previous generations. The inconvenient truth, however, is that there has been no meaningful rise in the average level of happiness.
In 1972, 30 percent of Americans said they were very happy, and the average American enjoyed about $25,000 (in today’s dollars) of our national income. By 2004, the percentage of very happy Americans stayed virtually unchanged at 31 percent, while the share of national income skyrocketed to $38,000 (a 50 percent real increase in average income).
You've heard the axiom a thousand times: Money doesn't buy happiness. Still, if you're like me, you would just as soon see for yourself if money buys happiness.
The story is the same in other developed countries. In Japan, real average income was six times higher in 1991 than it was in 1958. During the post–World War II period, Japan was transformed at unprecedented speed from a poor nation into one of the world’s richest countries. But the average happiness of a Japanese citizen, measured on a scale of 1–4, stayed exactly the same at 2.7.
In some countries, there is even some evidence that economic growth can create unhappiness. This is generally the case for nations experiencing rapid and chaotic development and thus opportunities for great wealth for the first time. Post-Soviet Russia is an example of this phenomenon. In the 1990s, after the fall of the Soviet Empire, a few entrepreneurs made vast fortunes in markets for oil and other primary resources. Yet post-Soviet Russia is a miserable place in which only about one in five citizens say they are very happy about their lives. Some development economists believe that cases of a few lucky entrepreneurs suddenly amassing large fortunes raised unreasonable expectations among ordinary Russians, creating a sense of extreme unfairness and leaving them deeply dissatisfied with their meager lot. And in this way, money created unhappiness.
So individual countries don’t seem to get much happier as they get richer. But are rich countries happier than poor countries?
The answer to this question depends on how poor a “poor country” is. People in poor countries where much of the population lives below subsistence level are much unhappier than people in rich countries, on average. International comparative studies of happiness consistently place the poorest nations of the world—especially the countries of sub-Saharan Africa—at the very bottom.
In 2006, one study ranking countries in terms of happiness found that Zimbabwe and Burundi were the unhappiest places on earth. And this makes sense, of course: It is ridiculous to imagine that illiteracy, high child mortality, and the threat of starvation are any more pleasant or bearable to a Burundian than they would be to an American. But once countries get past the prosperity level that solves large-scale health and nutrition problems, income disparity pales in comparison with other factors in predicting happiness, such as culture and faith.
For example, compare Mexico and France. The cost-of-living difference between the two nations is vast, so economists don’t compare raw income; rather, they compare the “purchasing power” of citizens. In Mexico—a nation in which most people live above the level of subsistence but still are much poorer than residents of the United States or Europe—the average purchasing power was about a third what it was in France in 2004. And yet Mexicans, in aggregate, are happier than the French. In Mexico, 63 percent of adults said they were very happy or completely happy. In France, only 35 percent gave one of these responses.
America as a nation has struggled and striven all the way to the top of the world economic pyramid. Are we suffering from some sort of collective delusion, or is it possible that money does buy at least a certain amount of happiness?
It might be tempting to dismiss the happiness of Mexicans as delusional or a reflection of the fact that most Mexicans have no idea what life with material wealth is like. But this would be a mistake: There is simply no evidence that Mexicans lack an understanding of true happiness compared to the French. A more reasonable conclusion is that Mexican happiness—and French unhappiness—are caused in large measure by forces other than money.
American communities are like countries when it comes to happiness. Like happy Mexico and unhappy France, the happiness of American communities—all of which are above the level of subsistence—depends very little on their comparative prosperity. There are abundant examples of unhappy high-income communities and happy low-income communities. Take eastern Tennessee (which includes the cities of Chattanooga and Knoxville, but is mostly rural), where people are 25 percent likelier than people living in tony San Francisco to say they are very happy, despite earning a third less money on average. Obviously, it is more expensive to live in San Francisco than it is to live in Tennessee, but San Franciscans still enjoy more than 30 percent more disposable income.
Like nations and communities, as long as they don’t start out dangerously impoverished, individuals get little or no extra happiness as they get richer—even massively richer. In a classic 1978 study, two psychologists interviewed 22 major lottery winners and found that the joy of sudden wealth wore off in a few months. Further, lottery winners have a harder time than the rest of us enjoying life’s prosaic pleasures: watching television, shopping, talking with friends, and so forth. It’s as if the overwhelming experience of winning the lottery dulls the enjoyable flavors of ordinary life.
This story opened with the sad tale of Mack Metcalf. In truth, it doesn’t necessarily destroy your life to win the lottery, as it evidently did his, but it won’t make your life better either.
So it’s true: Money doesn’t bring enduring happiness for countries, communities, or individuals, except perhaps when people start out in abject poverty. Why not? The answer has to do with what psychologists call “adaptation.” Humans tend to adapt psychologically to their circumstances—including their monetary circumstances—and do so very quickly.
Perhaps you’ve walked into a chain-smoker’s home and wondered how on earth he could stand to live with such a stench. The answer, of course, is that he is used to it. For the most part, the same is true of economic gains and losses in our lives: They give us pleasure or pain when they happen, but the effect wears off very quickly. Adaptation makes money unsatisfying per se because we get used to it quickly. Almost immediately, an increased income becomes the new “normal.”
For individuals, communities, and nations, economic growth is like being on a treadmill, and getting richer is like speeding up the treadmill: We never get any closer to bliss.
According to the great economist Adam Smith, an early proponent of the benefits of pursuing personal economic interests for the common good, “the mind of every man, in a longer or shorter time, returns to its natural and usual state of tranquility. In prosperity, after a certain time, it falls back to that state; in adversity, after a certain time, it rises up to it.”
Indeed, economists even refer to our tendency to adapt as the “hedonic treadmill.” They have found ingenious ways to illustrate how it works. In 1978, for example, researchers presented a sample of adults with a list of 24 big-ticket consumer items (a car, a house, international travel, a swimming pool, and so on). They were asked how many of these items they currently possessed; they were also asked, “When you think of the good life—the life you’d like to have—which of the things on this list, if any, are part of the good life as far as you are personally concerned?”
Inevitably, people felt that the “good life” required more things than they currently possessed. Among the people between 30 and 44 years old, the average number of items owned was 2.5, while the ideal number was 4.3. The same people were interviewed 16 years later, in 1994, and presented with the same list. Naturally, most people had more items; the ones formerly in their 30s and early 40s (now in the next age category, 45 to 59 years old) had 3.2 items, on average. They were closer to the good life, right? Wrong. Their requirements for the good life had now shifted, to 5.4 items. In other words, after 16 years and lots of work, the “good life” deficit had stayed almost exactly the same. The more stuff you have, the more you want.
Lottery winners have a harder time than the rest of us enjoying life's prosaic pleasures: watching television, shopping, talking with friends, and so forth.
Money may not buy happiness, but there is one important way in which money and happiness are related: At any given moment, richer individuals within a country tend to be happier than poorer folks. In 2004, Americans earning more than $75,000 per year were more than twice as likely to say they were very happy than those earning less than $25,000. One study found that when happiness was measured on a 1–3 scale (where 3 was happiest), Americans in the bottom 10 percent of earners in the mid-1990s had an average happiness score of 1.94; those in the middle of the income distribution had a score of 2.19; and those in the top 10 percent scored 2.36.
This is strange, because we know that money by itself doesn’t bring much happiness. Many economists look at these facts and conclude that though we really don’t care about having money for its own sake, we do care about having more money than others. In other words, my money only makes me happy when I notice that I am richer than you. Or that you are poorer than I, of course. (Like the old saying goes, “It’s not enough to succeed—your friends have to fail, too.”)
Some studies appear to back up this idea. For example, in one experiment from the early 1990s, human subjects were presented with two job options, both at magazines. At Magazine A, they would earn $35,000 while their colleagues earned $38,000. At Magazine B, they would earn $33,000 while their colleagues earned $30,000. Most of the participants chose the higher-paying job at Magazine A—the rational choice. However, two-thirds said that, notwithstanding their choice, they would be happier at Magazine B.
In another study involving faculty, staff, and students at Harvard University, participants were asked to choose between earning $50,000 per year while everyone else earned $25,000, or earning $100,000 per year while others made $200,000. The researchers stipulated that prices of goods and services would be the same in both cases, so a higher salary really meant being able to own a nicer home, buy a nicer car, or do whatever else they wanted with the extra money. But those materialistic perquisites mattered little to most people: 56 percent chose the first option, hypothetically forgoing $50,000 per year simply to maintain a position of relative affluence.
Could it be that what we care most about is not material comforts, but one-upsmanship? Perhaps out of our primeval past comes the urge to demonstrate that we are better than others. A hundred thousand years ago, it would have given us happiness to have more animal skins than the troglodyte in the next cave; this would help ensure mating prospects, which would keep our genetic lines going. Still programmed in this way, we get unexplainable pleasure from having a better office than our coworkers and a bigger house than the guy next door, even if we don’t “need” the space.
This theory may sound good, and it is quite common to hear, but it is not the explanation best supported by the evidence. Rather, what the data tell us is that richer people are happier than poorer people because their relative prosperity makes them feel successful. Think for a moment about your last big pay raise. Why did you feel such joy over it? Most likely, it was because of what your higher pay represented to you—evidence that you had succeeded, that you had created value. That’s why you enjoyed the raise more when you first were offered it than when you started spending it. It is success (not money) that we really crave.
Imagine two people who are the same in income as well as in education, age, sex, race, religion, politics, and family status. One feels very successful and the other does not. The one who feels successful is about twice as likely to be very happy about his or her life than the one who does not feel successful. And if they are the same in perceived success but one earns more than the other, there will be no happiness difference at all between the two.
The upshot: If you and I feel equally successful but you make four times as much as I do, we will be equally happy about our lives. Of course, successful people make more money than unsuccessful people, on average. But it is the success—not the money per se—that is giving them the happiness. I have no doubt that some people do get pleasure from lording their higher incomes over others. But the evidence says this is not the biggest reason that having more than others gives us happiness.
Financial status is the way we demonstrate to others (and ourselves) that we are successful—hence the fancy watches, the expensive cars, and the bespoke suits. We use these things to show other people not just that we are prosperous, but that we are prosperous because we create value.
There is nothing strange about measuring our success with money; we measure things indirectly all the time. I require my students to take exams not because I believe their scores have any inherent value, but because I know these scores correlate extremely well with how much they have studied and how well they understand the material. Your doctor draws your blood to check your cholesterol not because blood cholesterol is interesting in and of itself, but because it measures your risk of having a heart attack or a stroke. In the same way, we measure our professional success with green pieces of paper called “dollars.”
What scholars often portray as an ignoble tendency—wanting to have more than others—is really evidence that we are driven to create value. Wanting to create value is a virtue, not a vice. The fact that it also brings us happiness is a tremendous blessing.
Have you ever wondered why rich entrepreneurs continue to work so hard? Perhaps you’ve said, “If I had a billion dollars, I’d retire.” This is what Mack Metcalf actually did when he won the lottery. But if he had earned that money doing something creative and productive, things would almost certainly have gone differently for him. People who succeed at what they do tend to keep doing it. The drive to succeed, as opposed to just having more money than others, explains why the super-rich—who already have so much more than virtually everybody—continue to work.
Americans have on average gotten much richer over the past several decades than they were in previous generations. But there has been no meaningful rise in the average level of happiness.
If there is a downside to success, it is that it appears to set the bar high and keep it there. For a star quarterback who throws twice as many touchdowns each season as the league average, it is a letdown for him and his fans when he has a year that is only a little above average. The more you succeed, the more you need to succeed to feel happy.
Take the case of billionaire Larry Ellison, founder of Oracle. The world’s 14th-richest man, he would need to spend more than $30 million per week, or $183,000 per hour, just to avoid increasing his wealth. Further, he would have to spend it on items with no investment qualities, meaning that, unless he sets his money on fire, or (better yet) gives it away, he simple cannot not be filthy rich. Yet he continues to slave away, earning billion after billion. Being rich, and having more than the average Joe, simply cannot be driving Larry Ellison. It is the will to succeed and create value at greater and greater heights.
Who enjoys the benefits created from the slaving of Bill Gates (worth $58 billion and counting), Warren Buffett ($62 billion), and all of America’s other success-addicted, ultra-rich entrepreneurs? We all do: As long as fortunes are earned—as opposed to stolen, squeezed from governments, or otherwise extorted from citizens—this is good for all of us.
Oracle has not made Larry Ellison a rich man without any benefit to society. The firm currently has tens of thousands of employees, people with well-paying jobs to support their families. The company has introduced technology that has benefited all parts of the economy, and it has paid billions to its shareholders. And we can’t forget that Oracle has rendered generously unto Caesar, year after year: In 2007 alone, it paid $1.2 billion in corporate taxes, totally apart from the personal taxes paid by Ellison and his employees.
Money is a measure of success, and a handy one at that. But there is a dark side to this fact: People tend to forget that money is only a measure. Some people focus on money for its own sake, forgetting what really brings the happiness.
This is not really a shocking idea, to be sure: We often mistake indirect measures for the actual phenomena we care about. Take, for example, standardized tests in public schools. The purpose of administering them, at least originally, was to see whether schools were providing an adequate education to the majority of their students. When the students at a particular school perform poorly, on average, the school faces sanctions—thus the teachers have incentives to “teach to the test,” focusing on preparing students to take the test instead of teaching the content the test is supposed to measure. There is evidence that this is really taking place. Obviously, it is problematic and ironic if, in order to score higher on the measure of success, we degrade true education.
Just as teaching to the test leads to inferior education, working only for the money can lead to an unhappy life. No doubt you have met people who appear to be trapped in an unsatisfying cycle of materialism and unhappiness. These people confuse money for what it is supposed to measure, and thereby maximize the wrong thing. Among other things, they leave out of the equation all of the kinds of success—in our family lives, in our spiritual lives, in our friendships—that money does not measure. And even their work choices reflect the sad mistake of forgoing what they love doing for what brings in the most monetary compensation. The evidence on happiness is clear that we should avoid the measurement error of materialism.
In some countries, there is even some evidence that economic growth can create unhappiness.
So why do so many people fall prey to this error? One explanation—a timeless hit for critics of American-style capitalism—is that our commercial culture fosters it. Relying as it does on an unending stream of cash, it creates a cleavage for us between true value creation and the symbols of it: cash, and the stuff it can buy.
But before singling out the American freemarket system for creating this confusion, note that capitalism is not the only culprit— far from it. Governments encourage this measurement error even more egregiously. Remember Mack Metcalf: There is no doubt that he played the lottery—the government-monopoly-controlled lottery—in the belief that it would enhance his happiness if he won. Almost everyone believes this: How many times in your life have you been asked what you would do if you won the lottery? Have you ever said, “I would start by being exploited by manipulative friends and family, and then maybe go into an alcoholic spiral—and then I’d probably die an untimely and tragic death”? No, you list things you imagine you would like to do: go back to school, take vacations, buy homes in warm places, and so on.
What is going on here? On the one hand, you possess anecdotal evidence about cases like Metcalf’s. On the other hand, you are being told by those who are ethically and constitutionally bound to represent your interests—politicians and bureaucrats—that easy money will give you happiness. The New Jersey State Lottery’s slogan is “Give Your Dreams a Chance.” My own state of New York drew in gamblers for years with, “All you need is a dollar and a dream.” No doubt your state makes a similar claim.
But easy money will not bring you happiness—earned success will (and in many cases that earned success will also bring you money). It is simply inconceivable that your state lottery commissioner does not understand this fact at some level. Yet for the sheer sake of raising money for its own purposes, your government perpetuates this cognitive error. President Franklin Roosevelt once said, “Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.” How things have changed! Today, government officials eviscerate the very ideal of achievement while exploiting our citizens.
I am not advocating an end to legal gambling here. While I personally have no use for it, I understand that gambling is an enjoyable diversion for some. Furthermore, I believe there is a lot of benefit to protecting our freedom to make our own decisions about our resources, even including the freedom to confuse money and success. But it is astonishing that the government—for no other reason than monopolistically vacuuming money out of its own citizens—should abet this confusion and lower our happiness.
Mexican happiness—and French unhappiness—are caused in large measure by forces other than money.
How could the government make things better for us instead of worse? Here’s an idea: It could tax away our incomes at very high rates so that money and success were no longer so highly correlated. Then, that money (if we still bothered to earn it) could be spent on public goods and services instead of what we would have spent it on, such as big houses and other ostentatious displays of our success. We would be happier if we were forced out of the consumers’ arms race that we have (literally) bought into. And as a bonus, we could enjoy all the good things the government would buy. According to one prominent economist, “We could spend roughly one-third less on consumption—roughly $2 trillion per year—and suffer no significant reduction in satisfaction. Savings of that magnitude could help pay for restoring our infrastructure, for cleaner air and water, and a variety of other things.” It’s so simple!
Unfortunately, this idea is misguided. Although consumerism does not buy happiness, government spending does not either. On the contrary, more government spending makes us less happy in general. Over the past 30 years, Americans have had increasing levels of money taxed away and spent—at least ostensibly—on them. In 1972, the federal government devoted about $4,300 to each American (in 2002 prices). By 2002, the level of spending had risen to $6,900 per person. Yet we have not gotten any happier. In 1972, 30.3 percent of Americans said they were very happy. In 2002, that percentage was still exactly 30.3 percent.
Even worse, when we correct for changing household income levels and the passage of time, higher government spending turns out to be pushing average happiness down, not up. Consider that, while a $1,000 increase in per-capita income is associated with a 1.24 percent drop in the percentage of Americans saying they are not too happy, a $1,000 increase in federal government revenues per person is associated with a 2.91 percent increase in the percentage saying this.
In other words, private prosperity brings us up, but government spending brings us back down. For every dollar in increased GDP that the government taxes away and spends, there is a higher net unhappiness level among the population than if that money had never been earned at all. Why does government spending diminish our happiness so significantly? There are a number of possible explanations. First, in some cases the spending goes to things that make us miserable, such as the Internal Revenue Service. Second, government spending reminds us of how our economic freedoms are abridged, being paid for as they are with taxes. Third, government spending, for some—the nonworking poor, in particular—creates misery, because the people who are supposed to benefit t become dependent on government programs.
Our market system, which often rewards success with dollars, can create the tendency to confuse success itself with money. But giving more money to the government will not fix this; on the contrary, our government tends to exacerbate the problem with its money-making schemes (like the lottery), and it would only make things worse for us if it tried to adjust our values through taxation and redistributive spending. The moral confusion of materialism is one best left to ourselves, our families, our communities, and our faiths to resolve.
Although consumerism does not buy happiness, government spending does not either. On the contrary, more government spending makes us less happy in general.
This is hardly an original observation on my part. Alexis de Tocqueville wrote in his 1835 classic Democracy in America about the tendency toward “excessive individualism” in an atomistic American society. Tocqueville noted, however, that the remedy lay not in reordering the American system, but in the institutions of civil society: families, churches, charities, and friendships, which are the connective tissue between people that help us to avoid errors in our values. In other words, markets are not enough—we need morality as well, and the institutions that make it possible to express this morality.
Free markets allow us to live the way we want to live—giving most people maximum buying power, and allowing citizens to find jobs that match their skills and passions.
How we use this power and freedom is up to us, and depends on our values: We can make decisions that lead to happiness, or we can make decisions that make us miserable. But to throw out free markets because capitalism does not bring happiness directly would be senseless: It would be like trashing your computer because it didn’t make your coffee.
What about the losers in a capitalistic economy? Doesn’t a competitive market system make it harder for people unable to participate effectively in the market system to pursue happiness like the rest of us? The answer might be yes, but only if we are bereft of our core values of charity and caring for others. The fact that some sick or handicapped or otherwise-challenged people are miserable because they cannot provide for themselves in a free-market system does not mean there is something wrong with our system—it means there is something wrong with our morals. In a moral society, these people should be aided by the rest of us in a way that preserves dignity and avoids dependence.
The fact that money doesn’t buy happiness is no indictment of capitalism. On the contrary, capitalism is the best system to allow people to succeed on their merits in the economy—and we know that it is success that truly does bring happiness. Capitalism, moored in proper values of honesty and fairness, is a key to our gross national happiness, and we should defend it vigorously.
Arthur C. Brooks is a visiting scholar at the American Enterprise Institute and a professor at Syracuse University. This is adapted from “Gross National Happiness” (Basic Books).
Illustration by Aaron Staples, with images by istockphoto.
Wednesday, May 14, 2008
Housing
Housing the Key--and It's in Big Strife
Print
Mail
By Desmond Lachman
Posted: Tuesday, May 13, 2008
ARTICLES
Australian Financial Review
Publication Date: May 13, 2008
http://www.aei.org/publications/pubID.27988/pub_detail.asp
Resident FellowDesmond Lachman
Samuel Johnson famously observed that a second marriage was a triumph of hope over experience. One has to wonder whether the same might not be said of the present US financial market rally in the aftermath of last March's near-death experience in the markets at the time of the Bear Stearns' fiasco. For despite ample international experience that long recessions normally follow the bursting of major housing market and credit market bubbles, the financial markets seem to be telling us that they now believe that, whatever recession we might have had at the start of this year, a sharp US recovery is just over the horizon.
There are several strands to the market's optimism about an early V-shaped economic recovery. Among these is the fact that, while certainly not good, the various US macroeconomic indicators, like GDP growth and employment, for the first quarter of the year were not nearly as bad as the Cassandras had led us to fear. Then there is the expectation that the economy will get real support, at least in the near term, from the tax rebate program now in full swing. And finally there is the hope that US credit markets will continue calming down as they digest the signal from the Federal Reserve following the Bear Stearns' rescue that the Fed will simply not allow the financial system to implode.
A rapidly increasing rate of foreclosures is substantially adding to supply on an already glutted market. And there is every prospect that the foreclosure rate will continue to increase.
Valid as these arguments might be, they totally overlook the fact that the US economy is still being adversely impacted by the very same three negative shocks that caused the US economy to go into a funk in the first place. Worse still, it would appear that at least some of these adverse shocks are now intensifying.
Are US house prices at the national level now not declining at an accelerating pace in a manner that has no precedent in the past seventy years? Have not international oil prices dramatically risen to around US $125 a barrel, or approximately double the level that they were a year ago, thereby more than offsetting the US government's tax rebate program? And is the US financial system not still in the throes of what Paul Volcker has referred to as the "mother of all credit crises", as vividly illustrated by the Federal Reserve's recent still very gloomy survey of bank lending intentions?
In gauging the probable future direction of the US economy, it would seem that the prospects for the US housing market hold the key. This is not merely because a continued slump in housing construction activity could subtract a full percentage point from GDP growth in 2008 as it did in 2007. Rather it is because further major declines in home prices would have a very important bearing on the health of the US financial system as well as on consumer spending activity, which constitutes around 70 percent of the US economy.
Over the past year, declining home prices have already wiped out around US$2 ½ trillion in US household wealth. They have also caused analysts to raise their estimates of the potential losses to the financial system from mortgage lending to US$500 billion. This has effectively put an end to the ability of households to use their homes as ATMs to finance their consumption spending. It is little wonder then that US consumer sentiment has plummeted to multiyear lows.
Sadly, the immediate outlook for US home prices is grim. At present an estimated excess inventory of around 1 million unsold homes is weighing heavily on the housing market. Compounding this situation of excess supply is the fact that private sector mortgage lending has all but dried up in the wake of large sub-prime mortgage losses. Worse still, a rapidly increasing rate of foreclosures is substantially adding to supply on an already glutted market. And there is every prospect that the foreclosure rate will continue to increase as declining home prices boost the number of households with negative equity in their homes to around one third of all households by the end of the year.
A very real danger of rapidly declining home prices for the US economy is that it raises the real risk of creating an adverse feedback-loop. For as declining housing prices reduce consumer wealth and add to the financial system's losses, they push the economy further into recession. Yet as the economy slides deeper into recession, it exacerbates the downward spiral in housing prices.
To be sure, policy measures have been introduced to stimulate the economy in the form of a US$170 billion tax reduction package and Federal Reserve interest rate cuts totaling 3 ¼ percentage points. However, with the very real prospect of the US economy sliding deeper into recession, one might ask whether enough has been done to cushion the economy from America's largest housing market and credit market bust since the Great Depression.
Desmond Lachman is a resident fellow at AEI.
By Desmond Lachman
Posted: Tuesday, May 13, 2008
ARTICLES
Australian Financial Review
Publication Date: May 13, 2008
http://www.aei.org/publications/pubID.27988/pub_detail.asp
Resident FellowDesmond Lachman
Samuel Johnson famously observed that a second marriage was a triumph of hope over experience. One has to wonder whether the same might not be said of the present US financial market rally in the aftermath of last March's near-death experience in the markets at the time of the Bear Stearns' fiasco. For despite ample international experience that long recessions normally follow the bursting of major housing market and credit market bubbles, the financial markets seem to be telling us that they now believe that, whatever recession we might have had at the start of this year, a sharp US recovery is just over the horizon.
There are several strands to the market's optimism about an early V-shaped economic recovery. Among these is the fact that, while certainly not good, the various US macroeconomic indicators, like GDP growth and employment, for the first quarter of the year were not nearly as bad as the Cassandras had led us to fear. Then there is the expectation that the economy will get real support, at least in the near term, from the tax rebate program now in full swing. And finally there is the hope that US credit markets will continue calming down as they digest the signal from the Federal Reserve following the Bear Stearns' rescue that the Fed will simply not allow the financial system to implode.
A rapidly increasing rate of foreclosures is substantially adding to supply on an already glutted market. And there is every prospect that the foreclosure rate will continue to increase.
Valid as these arguments might be, they totally overlook the fact that the US economy is still being adversely impacted by the very same three negative shocks that caused the US economy to go into a funk in the first place. Worse still, it would appear that at least some of these adverse shocks are now intensifying.
Are US house prices at the national level now not declining at an accelerating pace in a manner that has no precedent in the past seventy years? Have not international oil prices dramatically risen to around US $125 a barrel, or approximately double the level that they were a year ago, thereby more than offsetting the US government's tax rebate program? And is the US financial system not still in the throes of what Paul Volcker has referred to as the "mother of all credit crises", as vividly illustrated by the Federal Reserve's recent still very gloomy survey of bank lending intentions?
In gauging the probable future direction of the US economy, it would seem that the prospects for the US housing market hold the key. This is not merely because a continued slump in housing construction activity could subtract a full percentage point from GDP growth in 2008 as it did in 2007. Rather it is because further major declines in home prices would have a very important bearing on the health of the US financial system as well as on consumer spending activity, which constitutes around 70 percent of the US economy.
Over the past year, declining home prices have already wiped out around US$2 ½ trillion in US household wealth. They have also caused analysts to raise their estimates of the potential losses to the financial system from mortgage lending to US$500 billion. This has effectively put an end to the ability of households to use their homes as ATMs to finance their consumption spending. It is little wonder then that US consumer sentiment has plummeted to multiyear lows.
Sadly, the immediate outlook for US home prices is grim. At present an estimated excess inventory of around 1 million unsold homes is weighing heavily on the housing market. Compounding this situation of excess supply is the fact that private sector mortgage lending has all but dried up in the wake of large sub-prime mortgage losses. Worse still, a rapidly increasing rate of foreclosures is substantially adding to supply on an already glutted market. And there is every prospect that the foreclosure rate will continue to increase as declining home prices boost the number of households with negative equity in their homes to around one third of all households by the end of the year.
A very real danger of rapidly declining home prices for the US economy is that it raises the real risk of creating an adverse feedback-loop. For as declining housing prices reduce consumer wealth and add to the financial system's losses, they push the economy further into recession. Yet as the economy slides deeper into recession, it exacerbates the downward spiral in housing prices.
To be sure, policy measures have been introduced to stimulate the economy in the form of a US$170 billion tax reduction package and Federal Reserve interest rate cuts totaling 3 ¼ percentage points. However, with the very real prospect of the US economy sliding deeper into recession, one might ask whether enough has been done to cushion the economy from America's largest housing market and credit market bust since the Great Depression.
Desmond Lachman is a resident fellow at AEI.
Friday, March 14, 2008
My new photo post card
Enjoy my best photos and links to my photo sharing websites on my photo website.
Beyond the Headlines
Thursday, March 13, 2008
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
Welcome to the Market Matters Advisory, your weekly guide to responding to the market.
Yahoo! Real Estate
Housing: Best time to buy in four years
Valuations—the difference between a home’s actual price and what it should cost—are the
lowest they’ve been in four years.
Keep this in mind…
• More than 88 percent of 330 housing markets surveyed showed price declines and
improved affordability during the last three months of 2007, according to bank National City
Corp. and financial analysis firm Global Insight.
• The survey covered home valuations during the last quarter of 2007, but there's reason to
believe that valuations are even more favorable for buyers today, according to the authors
of the report.
• The biggest gains in affordability occurred in California, Michigan and Florida, which are
areas that also have been some of the hardest hit by foreclosures. Those states registered
43 of the 50 biggest price declines.
To read the full story, please visit
http://promo.realestate.yahoo.com/housing:-best-time-to-buy-in-four-years.html
CNN Money
Home equity slips below 50 percent
Homeowners’ debt on their houses exceeded their equity for the first time since the
Federal Reserve Board began tracking it in 1945, falling below 50 percent.
Keep this in mind…
• Today’s low equity is a result of lax lending standards during the housing boom, when
many buyers were able to obtain mortgages with little or no money down. Although some
of those buyers could not afford their homes and lost them to foreclosure, some could
afford houses—with help from alternative loan models—and but for those loans would
have found homeownership beyond their reach.
• The statewide median price of existing single-family homes for January 2008 was
$430,370. The last time we had a comparable median price was in March 2004, when the
median was $428,060. Homeowners who bought their homes before 2004 will likely have
more equity than those who purchased since 2004.
• The median home price in January 2003 was $336,210. Comparing the current median to
five years ago, it is now 28 percent higher. People who buy a home and hold onto it at
least five years will usually come out ahead.
• A house is not a stock. It’s always been first and foremost a place to live, to raise a family
or to retire. Even when prices were falling, home buyers who pursued a buy and hold
strategy—retaining the property at least five years—have almost always come out ahead
in the long-run. Historically, the value of single-family homes in California has increased
about 9 percent a year.
To read the full story, please visit
http://money.cnn.com/2008/03/06/real_estate/home_equity.ap/index.htm
North County Times
Buyers jump into murky housing market
While low interest rates and depressed home prices have started to attract entry-level
home buyers, the typical home in San Diego County remains out of reach for the average
family.
Keep this in mind…
• Bleak economic news is usually followed by a downward turn in mortgage interest rates,
but despite some fairly poor news this week about banks selling securitized loans at fire
sale prices, the overall average of 30-year fixed-rate mortgages eased by just two basis
points (.02 percent). The fact that news that would usually produce a significant decline in
mortgage rates instead preceded only a modest drop could be a sign that rates may soon
go up. Consumers should take advantage of low interest rates while they last.
• According to home-finance corporation Freddie Mac, U.S. house prices have climbed 6.2
percent a year over the past 30 years.
• The recently passed economic stimulus package raised the conforming loan limit to up to
$729,750 in some areas. So-called "expanded conforming" loans should provide some
borrowers with an opportunity to finance or refinance at lower rates than the jumbo market
may currently offer, provided borrowers can meet the guidelines for a conforming loan,
which are usually more restrictive than jumbo market underwriting criteria.
To read the full story, please visit
http://www.nctimes.com/articles/2008/03/09/news/top_stories/1_04_993_8_08.txt
In other news:
Wall Street Journal Online
It's a buyer's market for home buyers
http://podcast.mktw.net/wsj/audio/20080310/pod-wsjymm/pod-wsjymm.mp3
Marketplace
Fed Takes New Steps on Credit Crisis
http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8V8M6I80&group=ap.online.he
adlines.business
Business Week
Trade group says commercial loans safe
http://www.businessweek.com/ap/financialnews/D8VARNI01.htm?campaign_id=alerts
March 13, 2008 Page 5 of 5
What You Need To Know About the Market
• Because the U.S. dollar is weak right now and home prices are low, many foreigners are buying
American real estate. Consider a REALTOR® who has partnerships with mortgage brokers or
attorneys who work with international clients.
• In many markets, there are a lot more homes for sale than there are buyers. That means you should
be able to negotiate a better price than if there were multiple buyers for each house for sale.
• Some sellers are offering buyer incentives, such as help with closing costs or down payments.
Many new home builders are making features that used to cost extra standard in order to move
inventory.
• Consumer confidence is showing signs of inching higher. According to the ABC
News/Washington Post consumer comfort index, sentiment increased four points to -30 in the week
ending March 9. This marks the second consecutive weekly gain. Over its 19-year history the index
has ranged from a high of 38 in January 2000 to a low of -50 in February 1992.
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
Welcome to the Market Matters Advisory, your weekly guide to responding to the market.
Yahoo! Real Estate
Housing: Best time to buy in four years
Valuations—the difference between a home’s actual price and what it should cost—are the
lowest they’ve been in four years.
Keep this in mind…
• More than 88 percent of 330 housing markets surveyed showed price declines and
improved affordability during the last three months of 2007, according to bank National City
Corp. and financial analysis firm Global Insight.
• The survey covered home valuations during the last quarter of 2007, but there's reason to
believe that valuations are even more favorable for buyers today, according to the authors
of the report.
• The biggest gains in affordability occurred in California, Michigan and Florida, which are
areas that also have been some of the hardest hit by foreclosures. Those states registered
43 of the 50 biggest price declines.
To read the full story, please visit
http://promo.realestate.yahoo.com/housing:-best-time-to-buy-in-four-years.html
CNN Money
Home equity slips below 50 percent
Homeowners’ debt on their houses exceeded their equity for the first time since the
Federal Reserve Board began tracking it in 1945, falling below 50 percent.
Keep this in mind…
• Today’s low equity is a result of lax lending standards during the housing boom, when
many buyers were able to obtain mortgages with little or no money down. Although some
of those buyers could not afford their homes and lost them to foreclosure, some could
afford houses—with help from alternative loan models—and but for those loans would
have found homeownership beyond their reach.
• The statewide median price of existing single-family homes for January 2008 was
$430,370. The last time we had a comparable median price was in March 2004, when the
median was $428,060. Homeowners who bought their homes before 2004 will likely have
more equity than those who purchased since 2004.
• The median home price in January 2003 was $336,210. Comparing the current median to
five years ago, it is now 28 percent higher. People who buy a home and hold onto it at
least five years will usually come out ahead.
• A house is not a stock. It’s always been first and foremost a place to live, to raise a family
or to retire. Even when prices were falling, home buyers who pursued a buy and hold
strategy—retaining the property at least five years—have almost always come out ahead
in the long-run. Historically, the value of single-family homes in California has increased
about 9 percent a year.
To read the full story, please visit
http://money.cnn.com/2008/03/06/real_estate/home_equity.ap/index.htm
North County Times
Buyers jump into murky housing market
While low interest rates and depressed home prices have started to attract entry-level
home buyers, the typical home in San Diego County remains out of reach for the average
family.
Keep this in mind…
• Bleak economic news is usually followed by a downward turn in mortgage interest rates,
but despite some fairly poor news this week about banks selling securitized loans at fire
sale prices, the overall average of 30-year fixed-rate mortgages eased by just two basis
points (.02 percent). The fact that news that would usually produce a significant decline in
mortgage rates instead preceded only a modest drop could be a sign that rates may soon
go up. Consumers should take advantage of low interest rates while they last.
• According to home-finance corporation Freddie Mac, U.S. house prices have climbed 6.2
percent a year over the past 30 years.
• The recently passed economic stimulus package raised the conforming loan limit to up to
$729,750 in some areas. So-called "expanded conforming" loans should provide some
borrowers with an opportunity to finance or refinance at lower rates than the jumbo market
may currently offer, provided borrowers can meet the guidelines for a conforming loan,
which are usually more restrictive than jumbo market underwriting criteria.
To read the full story, please visit
http://www.nctimes.com/articles/2008/03/09/news/top_stories/1_04_993_8_08.txt
In other news:
Wall Street Journal Online
It's a buyer's market for home buyers
http://podcast.mktw.net/wsj/audio/20080310/pod-wsjymm/pod-wsjymm.mp3
Marketplace
Fed Takes New Steps on Credit Crisis
http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8V8M6I80&group=ap.online.he
adlines.business
Business Week
Trade group says commercial loans safe
http://www.businessweek.com/ap/financialnews/D8VARNI01.htm?campaign_id=alerts
March 13, 2008 Page 5 of 5
What You Need To Know About the Market
• Because the U.S. dollar is weak right now and home prices are low, many foreigners are buying
American real estate. Consider a REALTOR® who has partnerships with mortgage brokers or
attorneys who work with international clients.
• In many markets, there are a lot more homes for sale than there are buyers. That means you should
be able to negotiate a better price than if there were multiple buyers for each house for sale.
• Some sellers are offering buyer incentives, such as help with closing costs or down payments.
Many new home builders are making features that used to cost extra standard in order to move
inventory.
• Consumer confidence is showing signs of inching higher. According to the ABC
News/Washington Post consumer comfort index, sentiment increased four points to -30 in the week
ending March 9. This marks the second consecutive weekly gain. Over its 19-year history the index
has ranged from a high of 38 in January 2000 to a low of -50 in February 1992.
Friday, March 7, 2008
Foreclosure "crisis" is overblown
How do you know what you are hearing on the news is accurate? Doesn't everything you hear about have to be taken in a greater context to fully understand how it affects you and your family, community and area?
Here's some information about the current state of home ownership and foreclosures presented from various media sources, provided by the California Association of Realtors:
http://www.car.org/library/media/papers/pdf/BeyondtheHeadlines_March.pdf
Here's some information about the current state of home ownership and foreclosures presented from various media sources, provided by the California Association of Realtors:
http://www.car.org/library/media/papers/pdf/BeyondtheHeadlines_March.pdf
Thursday, February 21, 2008
Locked Out 2008: The Housing Boom and Beyond
http://www.cbp.org/pdfs/2008/080212_LockedoutReport.pdf
California Budget Project
The CBP was founded in 1994 to provide Californians with
a source of timely, objective, and accessible expertise on
state fiscal and economic policy issues. The CBP engages in
independent fi scal and policy analysis and public education
with the goal of improving public policies affecting the
economic and social well-being of low- and middle-income
Californians.
This is a 55 page report on what the heck is happening in California when it comes to housing for the majority of Californians.
As I sell homes for people in this demographic I'm all too aware of the concerns of my clients at this time.
I'm a realtor who has served the needs of home buyers and sellers in the middle and working class neighborhoods of San Francisco for over 20 years and have made so many friends from the clients I've met and enjoyed helping so many people working in these neighborhoods.
Now, as a result of this down turn in the housing market in these areas, it makes me wonder about the economic and social well-being of upper income Californians.
Can I ask you a question? What do you think...should I abandon working in the Sunset, Excelsior and Daly City and concentrate my efforts on Pacific Heights?
I don't think I will. But the Who's great, GREAT song does come to mind when I think about the middle and lower middle class in the state of California...."WE DON'T GET FOOLED AGAIN!"
California Budget Project
The CBP was founded in 1994 to provide Californians with
a source of timely, objective, and accessible expertise on
state fiscal and economic policy issues. The CBP engages in
independent fi scal and policy analysis and public education
with the goal of improving public policies affecting the
economic and social well-being of low- and middle-income
Californians.
This is a 55 page report on what the heck is happening in California when it comes to housing for the majority of Californians.
As I sell homes for people in this demographic I'm all too aware of the concerns of my clients at this time.
I'm a realtor who has served the needs of home buyers and sellers in the middle and working class neighborhoods of San Francisco for over 20 years and have made so many friends from the clients I've met and enjoyed helping so many people working in these neighborhoods.
Now, as a result of this down turn in the housing market in these areas, it makes me wonder about the economic and social well-being of upper income Californians.
Can I ask you a question? What do you think...should I abandon working in the Sunset, Excelsior and Daly City and concentrate my efforts on Pacific Heights?
I don't think I will. But the Who's great, GREAT song does come to mind when I think about the middle and lower middle class in the state of California...."WE DON'T GET FOOLED AGAIN!"
Sunday, February 10, 2008
Short Sale
I have a listing @ 3112 San Bruno Avenue that's a short sale. That's a sale in which the value of the property is less than the amount of the mortgages the owner owes. The owner can no longer afford to pay the mortgage, so we find a buyer willing to pay the current market value and ususaly the mortgage holder will accept a sale in which they receive less than what they are owed. Buy the lender prefers to get less than what they are owed than have to foreclose and take the home back and re sell the home at a later date.
For information on the property please check my website: www.DavidKleinSF.com
For information on the property please check my website: www.DavidKleinSF.com
Thursday, February 7, 2008
Condo Coversion
What's all the buzz about condo conversion you hear these days? Chinese new year and condo conversion lottery are the big events in San Francisco in early February. Chinese New Year - a great, great tradition for everyone to enjoy. Condo conversion lottery - just part of this insane matrix of issues that makes up the San Francisco housing market - full of winners and losers. Well, I've got to get to work and try to find some winners! Read all about condo conversion hear and here's wishing that you're a big winner too!
http://www.andysirkin.com/HTMLArticle.cfm?Article=2
http://www.andysirkin.com/HTMLArticle.cfm?Article=2
Friday, February 1, 2008
Rainy Night
I shot this image with my Nikon D70 digital SLR camera from inside my car sitting facing west on Gellert in the middle of the street (late in the evening with no traffic coming up from behind me) just past the corner of Callan. This is on top of a hill at the south west corner of the Serramonte shopping center. My camera lens is set at 70mm which is zoomed in pretty tight, looking at the street in front of me. What you see are the street and car lights reflected on the wet street. The exposure time is half a second, with the f stop set at 4.5, which allows in a lot of light (the lower the f stop, the greater amount of light that comes through the lens opening). The camera didn't record the film speed rating (this is the sensitivity to light) and neither did I, but I think this was set at around 200 or 250. The lower the film spped, the lower sensitivity to light but the less amount of grain. This image was cropped into a square composition, brightened and sharpened a bit, but there is no other manipulation of the image. It's a beautiful image on a rainy night in Daly City.
Investment
San Francisco and northern San Mateo county is one of the most spectacular places to live in the entire world. And along with that spectacular setting comes a whole host of issues involved with the price of real estate. I encounter so many people in my work as a Realtor here who work full time or are retired and do not want to take on stressful work but would like greater monthly income who
1. Already own real estate in the Bay Area, either as their residence and/or rental property and would like to buy more investment property to improve their particular financial situation
2. Rent a home as their residence and would like to own real estate.
BUT (the big BUT), the cost is too high to buy here in the better areas and are not interested in buying in the less desireable areas.
So...why not consider buying real estate in this amazing place across the Bridges called: The United States of America. It's a great place!! They speak English and use the dollar. Lots of educated folks willing to pay great rent for a decent home in nice, middle to upper middle class neighborhoods. And there are places in the United States that are still appreciating in value.
I recently learned of a firm that specializes in helping investors buy residential investment property in Portland and Seattle. I was impressed with their presentation and would highly recommend them to any property owner with poorly performing residential property here in SF or northern San Mateo county....or someone paying reasonable rent for a great place in the City and would like to stay put but would like to own real estate as an investment.
http://www.siffinvestment.com/
A fellow realtor I know has recently started an investment company specializing in the cities of Tulsa Oklahama and Kansas City Missouri. These also look like great cities to invest in.
http://www.cadenceinvestment.com/
And I also recommend
http://northpointgroup.com/
Which has information on many locations throughout the United States.
Feel free to contact me directly for more information on these companies and if you contact them directly please let them know that I sent you. And PLEASE, if you are interested in buying a residence or investment property, or are considering selling your residence or investment property here in the City or northern San Mateo County. give me a jingle and I'll work my magic for you!
1. Already own real estate in the Bay Area, either as their residence and/or rental property and would like to buy more investment property to improve their particular financial situation
2. Rent a home as their residence and would like to own real estate.
BUT (the big BUT), the cost is too high to buy here in the better areas and are not interested in buying in the less desireable areas.
So...why not consider buying real estate in this amazing place across the Bridges called: The United States of America. It's a great place!! They speak English and use the dollar. Lots of educated folks willing to pay great rent for a decent home in nice, middle to upper middle class neighborhoods. And there are places in the United States that are still appreciating in value.
I recently learned of a firm that specializes in helping investors buy residential investment property in Portland and Seattle. I was impressed with their presentation and would highly recommend them to any property owner with poorly performing residential property here in SF or northern San Mateo county....or someone paying reasonable rent for a great place in the City and would like to stay put but would like to own real estate as an investment.
http://www.siffinvestment.com/
A fellow realtor I know has recently started an investment company specializing in the cities of Tulsa Oklahama and Kansas City Missouri. These also look like great cities to invest in.
http://www.cadenceinvestment.com/
And I also recommend
http://northpointgroup.com/
Which has information on many locations throughout the United States.
Feel free to contact me directly for more information on these companies and if you contact them directly please let them know that I sent you. And PLEASE, if you are interested in buying a residence or investment property, or are considering selling your residence or investment property here in the City or northern San Mateo County. give me a jingle and I'll work my magic for you!
Monday, January 28, 2008
Pricing
E-mailed to me 1/28/08
Correct pricing solves home sales problems Sunday, January 27, 2008 Editor - As a real estate educator, I give advice to clients, students and professional advisers on making good real estate choices.
My recommendation is for advisers and the media to be more direct and less accommodating on the topic of selling a home in today's market. ("For a quick sale, make your home stand out," Jan. 20.)
Selling a home is 90 percent pricing and 10 percent marketing (staging, advertising, broker tours, etc.). A buyer will not pay more for a property than it is worth because of marketing. In fact, great marketing will quickly kill an overpriced listing. But a home properly priced will sell.
Pricing solves all shortcomings and issues. Sellers today should consider setting price based on current pending and sold listing data, and much less on active and expired listing data.
Serious sellers price their home to sell. Sellers who are not serious about pricing strategy should stay out of the market and reduce the clutter of listings. The opportunity for learning from today's real estate market is that - without exception - all asset classes (including real estate) are cyclical. Remembering this should help families and individuals make better choices in the future.
RICH ARZAGA Instructor, UC Berkeley, UC Santa Cruz
Correct pricing solves home sales problems Sunday, January 27, 2008 Editor - As a real estate educator, I give advice to clients, students and professional advisers on making good real estate choices.
My recommendation is for advisers and the media to be more direct and less accommodating on the topic of selling a home in today's market. ("For a quick sale, make your home stand out," Jan. 20.)
Selling a home is 90 percent pricing and 10 percent marketing (staging, advertising, broker tours, etc.). A buyer will not pay more for a property than it is worth because of marketing. In fact, great marketing will quickly kill an overpriced listing. But a home properly priced will sell.
Pricing solves all shortcomings and issues. Sellers today should consider setting price based on current pending and sold listing data, and much less on active and expired listing data.
Serious sellers price their home to sell. Sellers who are not serious about pricing strategy should stay out of the market and reduce the clutter of listings. The opportunity for learning from today's real estate market is that - without exception - all asset classes (including real estate) are cyclical. Remembering this should help families and individuals make better choices in the future.
RICH ARZAGA Instructor, UC Berkeley, UC Santa Cruz
Sunday, January 27, 2008
Fireworks
Thursday night, January 17, 2008. It was the night that the gallerys and design showrooms in the Jackson Square district were having their annual "walk" open house. I had been down to the district earlier in the evening aroundf 6 pm and then headed back to the Sunset for a meeting of the Taraval Parkside Merchants Association. After the meeting ended I headed back towards the Jackson square district looking for the bar where there was supposed to an after party - a bar I had never been to befor so I wanted to check it out. I was driving towards the Bay on Broadway around 9:00 pm when all of a sudden I see fireworks going off over the Bay! I hit the gas and then the brakes and pulled over to park in the lot at the corner of Broadway and the Embarcadero and ran across the Embarcader. I set my camera down on the railing and started snapping away! Next thing I see, a camera man from Channel 5 pulls up next to me and asks "me" what the heck the fireworks are for! I sure don't know. But I see a tour boat parked out on the bay, and speculate that it is some kind of private party on the tour boat that ordered up this huge fireworks display. It was really awesome, just like the show for KFOG's Kaboom or for the 4th of July. And the public didn't know about it!!!!
Now here's the issue: I'll admit it, I'm a democrat, born and bred in the middle class and rather sympathetic to the union/working kinda guy. So I'm thinking that these rich folks have their nerve!!! They throw a giant fireworks display and don't even tell the public about it.
But maybe that's not the way it came down. Maybe, whoever paid for the fireworks, wanted to tell the public about it but the SF City Government wouldn't allow it?
Later that night I wandered into the Cigar Bar Club where some European club was having a party. Some of the young folks there said they saw the fireworks display while driving on the bridge and just simply thought how cool it was to see the fireworks!!!
I don't know. What can you say about SF....now there are towers built next to the freeway on Rincon Hill blocking the views of the Bay Bridge from Twin Peaks and from the Top of Dolores Park ....places where you used to be able to snatch a pretty cool free view of the bridge. Now, you got to pay a million bucks to get the view. And fireworks over the Bay for private tour boats. Is it a trend? I don't know. Well, out in the Sunset we can't see the Bay anyway so I'm not going to worry about it.
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