patrick.net

It's different this time.

Clearly prices can come down a lot more and still be above the inflation rate.

Or stay flat for another 20 years or so.

gregpfielding says

Or stay flat for another 20 years or so.

In nominal terms. What about after inflation?

My belief is that the Fed will keep trying to prop up housing by devaluing the dollar. The Fed is a private bank that was created to benefit the banks.

So it might be somewhat rational to buy rather than rent...as a hedge against inflation. But what if the Fed decides to tighten for whatever reason? We're at the mercy of the Fed.

The theory makes sense if there are no transformative changes between 1980 and now.

For starter, mortgage interest was around 12% in 1980 vs 4% now. There are other transformative changes (favorable and unfavorable) unaccounted for.

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

Under which scenario will mortgage rates ever be >7% again? According to the default numbers being 4 to 10 times higher than pre 2007 mortgage rates should be in double digits and down payments shoule be 30%+ (basically thats private hard money rates). But taxpayers are giving loans to people with poor credit, 3.5% down or less at 3% - also mods at 2%. The cost must be enourmous to subsidize all these bad loans that were written and are continuing to be written. Expensive as in you can have free healthcare for all OR subsidize banks/asset holders..... #2 was chose for us.

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.
They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

That sums it up well.

wthrfrk80 says

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

That sums it up well.

I'm thinking we have to have another 1980-1982 style recession to wring out all the inflationary pressures and set us up for the next growth spurt. This is what Volcker cooked up in 1979, sold it to Reagan because it was widely known he would be President (just as most people in the know agree that Romney will be President because of historical trends telling us Obama isn't electable with his polls the way they are) and they made it happen.

Let's dig into this. Government's two primary constituencies are old people and the military. We have retirees as a rapidly expanding demographic. They're earning 1-2 percent on their holdings when gasoline is three or four bucks and commodity prices are going crazy and less well off people are getting nailed at the grocery store. People out here talk about sustainability...well, guess what? THIS isn't sustainable economically speaking. We HAVE to get a new President and new party controlling the Senate and we HAVE to get a new Fed chief to help start the process of cleaning up the unholy mess (which everyone knew was coming) and moving us back to a point from which we can have a normal economy again.

Is there anything here I've missed?

PockyClipsNow says

the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

Yes, that really is exactly what's going on.

Democracy? I don't think so. Just a myth to keep the banks in power.

rootvg says

Is there anything here I've missed?

Yes, Romney is just more of the same. Probably even worse.

I don't know about worse.

Foreign policy will be better under the Republicans. It always is. It's what they do. Larry Eagleburger, Caspar Weinberger, Al Haig, Jimmy Baker...they were all conservative Republicans. These guys knew how to turn the screws. They were REALLY good at it.

I do know that rates have to go up. Bernanke knows it, too. He just won't talk about it.

wthrfrk80 says

The Fed is a private bank that was created to benefit the banks.

Actually banks are FED soldiers.

wthrfrk80 says

Or stay flat for another 20 years or so.
In nominal terms. What about after inflation?

What if devaluation of dollar (inflation) pop up house prices everywhere but BA will stay on same level?

What you have there... is a bankruptcy premium for Vallejo and Stockton.

rootvg says

Foreign policy will be better under the Republicans.

LOL How did that work out under Bush Jr?

rootvg says

I'm thinking we have to have another 1980-1982 style recession to wring out all the inflationary pressures and set us up for the next growth spurt.

Growth is dead, unless we can find oil that can feed the entire global demand and find people to take on more credit. Secular Deleveraging for a decade or more.

Inflationary pressures will die down because Bernanke just said he has no more plans to do further easing. That has made the market already uneasy about liquidity concerns and we are seeing the action over the past 2 days.

What we are more likely to see is a steady long-term decline , although choppy because of an uncertain Fed monetary policy and an even more uncertain and an irresponsible political gridlock.

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

It's not just the banks at this point, it's the government in tandem with the banks as well. If banks a.k.a primary dealers won't buy Treasuries, how can they make sure interest rates stay low?

I think we have Zombie banks and a Zombie Government .
Not just here, same situation in Europe, Japan as well.

Clearly prices can come down a lot more and still be above the inflation rate.

I don't know if it makes sense to compare inflation rate with prices for a place like Bay Area where people ARE willing to pay a premium to live. I know -- they are overpaying, but the point is -- there's too much competition. Think of a place like North Hollywood for example, will prices measured in dollars ever come down? They can't purely because someone is willing to pay that high price. So may be the prices correlate more with income and/or wealth (because of the affordability factor of monthly mortgage payments or buying it outright).

Bay Area (Cupertino and other most desirable areas) is one place where rent vs. buy logic fails, miserably.

uomo_senza_nome says

Bay Area where people ARE willing to pay a premium to live. I know -- they are overpaying, but the point is -- there's too much competition.

Willing to pay is also linked to banks willing to lend! Anyways, too much competition to buy? In that case prices should be rising. Isn't it? I think "competition" appears to among sellers! :)

Keep in mind, during the Great Depression (yes, I keep going back to it because you're all ignoring it) they said America was over and we emerged in the late forties as king of the hill. Europe is in worse shape than we are right now. China is another bubble waiting to burst and Japan is still in the process of emerging from its lost decade.

I also remember Carter saying at the end of the seventies that we needed to draw in our horns and accept there would be no more growth. You see what happened to him (and to Truman during a period of high unemployment in the early fifties) and that's what's gonna happen to Obama.

I just saw Santorum's speech in Steubenville. If he takes Ohio from Romney, Romney gets the nomination anyway and takes Ohio with Santorum as a running mate...whew, it'll be a wild four years with a Republican Congress. George Allen was saying it won't take much to win the Senate now. North Dakota, Nebraska, Ohio and Virginia are all Dem seats likely to flip next time around.