invite response« First « Previous Comments 157 - 164 of 164 Search these comments
Peter P, The fundamentals are not static, they shift over time on an upward long-term trend. So, when prices are above the fundaments and they decline, the bottom is not where the fundamentals once were, but where they have grown to be. In a growing economy the decline is normally smaller than the rise.
Regarding anticipation of household formation and demand compression: These are very real effects that are a factor in the prices rising faster than the fundamental-supported long-term trend. These are cyclical effects, and there is an opposite effect during the market decline. Classic market cycle stuff...
Well it’s very late on this side of the Hudson River, and I am going to bed. Lots of snow and ice expected here tomorrow… oh joy.
B.A.C.A.H.
2005 Dec 8, 3:41pm
Peter P. wrote:
"Better yet, housing price is not part of the CPI. Will we have hidden deflation?
I checked into this recently, and was surprised at what I found. You can go to the website of the Bureau of Labor Statistics and look at the components of the CPI. I would encourage interested persons to do so. All the expenses in the "basket of goods" are given a weighting factor.
And yes there is a housing price factor in the CPI, they call it the rental equivalency or something like that. I compared the weighting of it to that in my own personal spending, it was within a percent of the proportion assigned in the CPI. So were the expenditures on all the major categories, within about a percent of the CPI weighting: the food, transportation, etc. The only item that was far off between my budget and the CPI was the life insurance premium: I did not see it in the CPI.
It's in vogue now to dismiss off the CPI, but at least for the time being, now that I've done the exercise, I'm not so skeptical about its accuracy.
I think what it really says is that if housing approaches half the personal spending, it's not the housing price that's out of whack: it's the spending on housing that's out of whack. (Three or so decades ago what folks deride here as $hitboxes were considered to be reasonably modest abodes. Certainly by standards of living all over the world they are still so.)
Better yet, housing price is not part of the CPI.
Housing should have its own index FPI (flipper price index). This index is very high right now, but is falling.
Ajh, Interesting… Zoovisitor obviously reads this website, since my lengthy post was copied word for word.
I don’t know whether I should be flattered or annoyed.
The peak of retirement will likely come between 2020 and 2025. However, it is the departure for nursing homes and the great beyond that will make the boomers net sellers of real estate.
Net housing formations will go flat for a bout 15 years as the boomers die off. I expect the period 2025 to 2040 to be the weakest real estate since the great depression. I have not yet tried to estimate how severe the price pressure will be because it it so far into the future -- so much can change.
« First « Previous Comments 157 - 164 of 164 Search these comments
I’ve noticed that lately there have been a lot of big industry players raising Cain over proposals to limit or even eliminate the mortgage interest deduction (http://tinyurl.com/bht2q). These are the same “pro-business†industry blowhards who typically lobby with all their might against the evils of government “regulation†(which usually translates as “consumer protections†or “eliminating my favorite sacred-cow tax subsidyâ€).
I have a few questions for these people:
Consider the incentives government currently provides for individual homeowners: the 1997 tax law greatly increased the RE capital gains exemption ($250K single/$500K married: http://tinyurl.com/bsfzd). This exemption was even extended to second (investment) properties, for reasons we can only “speculate†about (*smile*). Add to this the already existing generous mortgage interest tax deduction and the popular “1031†tax shelter. Result? A tax incentives system rigged heavily in favor of RE “investing†over saving or investing in any other asset class –stocks, bonds, commodities, etc.
If this weren’t lopsided enough, taxpayers are also partly subsidizing risk for banks and mortgage companies. By selling their conforming loans to the GSEs and selling non-conforming (sub-prime) loans to private MBS issuers & REITS, the lender can simply walk away from default risk with profits in hand and go make more bad loans. (Btw, the GSE conforming loan cap was just raised another 16%: http://tinyurl.com/azd48.) Chickens will no doubt come home to roost for investors in private MBS paper at some point, but GSE-issued MBS paper has the implied full faith and backing of the U.S. taxpayer. This (assumed) low risk has translated into extremely low risk premiums by investors, and incredibly loose-to-nonexistent lending standards. To this day, the GSEs, which still purchase some 50% of the nation’s residential mortgages for MBS resale, remain privately owned for-profit companies with exclusive government monopoly charters, along with implied taxpayer guarantees and access to unlimited Treasury capital. And let’s not forget that the Fed kept their funds rate negative in real (inflation-adjusted) terms for two years, which no doubt “helped†many home values go parabolic over the past few years.
Whatever you subsidize, you get more of –right? Now the taxpayer is heavily subsidizing both sides of the RE market: supply and demand. Predictable end result: historically low risk premiums (low rates on mortgages & MBSs) in a time of historically high default risk, sky-high prices and overextended borrowers. See PMI Group’s breakdown of default risk by city at WSJ.com: http://tinyurl.com/dd6ps.
Is having the government pick winners & losers really a “free market†or “pro-business†philosophy? Are you a “Big Government Libertarian�
Discuss, enjoy...
HARM
#housing