patrick.net

http://ochousingnews.com/blog/reflating-housing-bubble-mis-allocates-resources-yet/

Builders are responding to the lack of inventory and higher prices by building homes in areas where we really don’t need them.

Builders will construct new homes anywhere they see an opportunity to make money. They are starting to build homes again in the high desert of California where only a few short years ago, they massively overbuilt houses we didn’t need in response to the false price signal from the housing bubble. Now, with lenders restricting inventory in an effort to reflate the bubble, builders once again see an opportunity to make money by building homes where we don’t need them.

Is this what the federal reserve and politicians thinks is best for the economy? They wanted to force the housing market to bottom and house prices to rise in order to bail out the banks and to put homebuilders back to work. They are succeeding; but in the process, they so distorted the market that homebuilders are going back into overbuilt areas and mis-allocating more resources. I once read Paul Krugman joke about burying money so people had to go to work digging it up, not a productive use of time and resources. Building homes in the high desert is only one step removed from that insanity.

Source: http://ochousingnews.com/blog/reflating-housing-bubble-mis-allocates-resources-yet/#ixzz36JmvuUU1

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