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Comment by Malarkey73 | Hacker News Reader

This article is ass backwards. It implies that the upper middle classes are poor because they don't keep cash savings.

But what it actually suggests is that the middle classes are putting their money into property and investments - which is indeed a rational choice that will make their excess wealth work for them.

Not that I'm saying the middle classes aren't being squeezed - by the 1% stretching off into the distance. But this is just not that.

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Sure, but in the case of job loss + foreclosure or short sale, all of that goes up in smoke. It's a big risk.

I wonder why one can't sell a house for about 95% of the market value in a month. I mean it sounds like a good deal: the property owner can sell the property quickly to pay off the mortgage, while keeping some of the savings for himself. The real estate investor will make 5% of the value of the house in a few months (minus expenses).

Transaction costs on housing hover around 5-6% generally, and that ignores holding costs. Housing isn't an 'economically perfect' marketplace.

Fair point. Transaction costs for the seller where I live apparently only include the estate agent commission, which can be 3% or even a fixed amount (e.g. 3k€).

What makes you think you can't do that? Unless the housing market is frozen, pricing a home under the fair market value usually results in a pretty quick sale.

However, closing in 30 days might be tough. 60 days is probably the norm.

I didn't say that you can't sell houses sometimes under 30 days, my case was about certainly selling your house in 30 days for significantly (~5%) under the market value. If that's actually possible, then the parents claim "in the case of job loss + foreclosure or short sale, all of that goes up in smoke" is incorrect. If it's not possible, then I wonder why, because the economics seem to make sense.

5% of market value, 4-6% brokerage fees, ~3% transaction fees, ~1% in switching costs (double-rent), adds up to most of the home equity most people have.

Plus, as is probably still the case in a few parts of the US, a given mortgage may well be underwater (i.e. the house, even at market value, may be worth less than you owe). As others have pointed out there are also a lot of transaction costs, especially for a house (don't forget moving/storage/etc. too). If you've largely paid off your mortgage, sure, but then you have a great source of collateral if you need some short-term money.

In the US you can sell a house quickly if you can list it at an attractive price. I did it once - I had to start a new job far away in a relatively short period of time, so I sold my house in 15 days, including escrow. It probably cost me somewhere in the neighborhood of 6% of the total value.

But to do that you need equity. In a short sale or a foreclosure you're leaving the house without any money, which "up in smoke" seems to describe.

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