EVERYONE KNOWS that housing prices have soared, to the point where the median sales price of the average new "dream" house last year was $48,700. Today $100,000 no longer represents a rich family's mansion, but a relatively modest home.
But not everyone is aware of the enormous capital gains that have been made in the sale of existing homes, and how important that flow of money has been in sustaining the housing boom and other consumer spending.
A favorite pastime in this and other large cities is to look through the weekend real estate or home living sections to see how much one's own home has increased in value. Average selling prices last year were up 12 percent, or double the consumer price index increase.
According to New York economist Alan Greenspan, actual sales of existing homes reflected a profit of about $50 billion last year. And virtually the entire amount of this capital gain was "monetized" - that is, turned into cash through new mortages.
Additionally, an untold amount of "unrealized" capital gains - the Walter Mitty profit on your own home you calculate reading the paper - is actually turned into spot cash by many who borrow against their enhanced equity.
For example, a typical house for $27,000 in 1968 would sell for at least $40,000 today, for a $13,000 capital gain. The existing home owner would have no problem in adding that much or more to his remaining mortgage. In the aggregate, perhaps another $20 billion to $30 billion in consumer spending power is created this way.
PART OF THESE huge cash flows have supported the new housing market, providing, incidentally, a tax shelter for the profit on an older home. But Greenspan makes a good case for the theory that a large part of the inflated value in home equities also has been spent on other goods and services (in some cases, college education) and in savings.
"Capital gains home sales are (thus) a potent force in consumer markets, far greater than, for example, stock market gains," Greenspan says.
The great bulk of middle-income Americans show no concern that they ever might face a capital loss in their homes. As a recent Morgan Guaranty analysis suggests: "Home buyers have done a lot less handwringing than have the analysts of trends in (housing) prices. Many Americans seem to have concluded that, in an age of inflation, housing is the only hedge available, a perception that has made for eager buyers."
But how about those first-home buyers who have no convenient capital gains nest egg, especially the newly married (or newly jioned) couples? This is where the main problems exists, even though an increase in two-worker families has helped household income keep pace with balloning housing cost.
THE $48,700 MEDIAN sales price of new homes last year was 36 percent more than in 1974, according to census data, while the consumer price index was up about 23 percent in the same span of time.
Leaders are experimenting with variations from standard mortages that shift the heavier burden of payments to later years. But this exploration has long way to go.
The crunch for low-income to middle families is in the total cost of owning a home - taxes, interest rates, higher gas or electric bills, and so on. Since 1967, total costs associated with home ownership have grown faster than median family income, according to Morgan Guaranty. As a matter of fact, costs of ownership have exceeded costs of equivalent rentals.
But other factors tends to even out his disparity - espacially the tax deductibility if interest and costs by home owners.
The $100,000 to $200,000 question, of course, is what will happen? Will housing prices stay on a permanent escalator? Will that $100,000 house be $200,000 in a few years, and the $200,000 property soar to $500,000?
"The assumption of ever rising prices for new homes is not valid," Greensplan says. A sharp break in prices of existing homes could pull down prices for new homes to actual costs or below, he guess. But neither Greensplan nor other housing experts this to happen.
Experts such as Michael Sumichrast of the National Association of Homes Builders expect mortgage interest rates to hit a shocking 10 percent level this year, but think other production costs in housing could soften. Taking it all together, the outlook is for the rising trend in home prices to continue, but perhaps at only a 6 to 7 percent rate instead of last year's 12 percent.