Is housing really different, do bubbles every re-inflate over the short term?
invite response
2010 Nov 8, 1:20pm 1,546 views 3 comments
Comments 1 - 3 of 3 Search these comments
Â¥
2010 Nov 8, 2:28pm
In every local market we basically bid up the cost of housing to the point of unaffordability. The house itself isn't what we're paying all the money for, rather it's the rents we avoid that determines the cost.
That plus what financing -- interest rates, down payments -- is available and how much banks are willing to lend to people in general.
Apparently nobody who understood economics was paying attention 2002-2006 as the free market (pbuh) decided to do a Martingale on home valuations.
That caused home prices to triple during the bubble but all those good times have left a cratered economy since we did not use that money to invest in new productive capacity, just granite counters and 56" TVs.
And the present economy is still fake. Pull out the trillion-plus annual Federal deficit and let's see how well the economy holds together. States are going to either have to raise taxes or cut spending.
Trillion plus deficit! Hundred billion a month. $5000/mo is a decent salary so that's TWENTY MILLION JOBS directly dependent on unsustainable deficit spending.
The core problem is all the debt we ran up in the previous decade. It's all going to go bad unless they can turn the inflation machines back on. And if it goes bad, we will find us returning to 1990s prices even with a lot more money around, because all that money might as well be on the moon as far as the middle class is concerned.
Seem Patrick posted a relevant story to my question just now.
Does the Fed really not get that many people want to refinance but can't due to negative equity? Does sequential lowering of interest rates ever closer to 0 get people to habitually refinance or will most have refinanced anyway? If so why bother with further moves to lower interest rates. I mean who who a 6+% mortgage did NOT already refinance at 4.2% if they could??
I was curious that with QE and QE2, stock market rallies, PM rallies, and commodity rallies that housing remains so depressed. Is this just a typical feature of economic bubbles, that they do not re-inflate in the short term? If so, doesn't this make all the efforts to stabilize housing rather futile. It seems if the problem is housing and the Fed is taking measures to solve that problem that the money is all being allocated into unintended areas. I suppose this is a general criticism of Fed interventions.
I should add I am asking this here trying to get a crystal ball into Phoenix area house prices in 2013-2015. I am trying to make some decisions about life in the short and intermediate term, and the thought of Phoenix pricing doubling by 2015 makes me a bit nauseous, as unlikely as that may seem (we are looking at renting short term). Note I don't care about calling a bottom, rather I'm concerned about crazy upside inflation do to same cork popping in demand or something.
Thanks
#housing