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Another way of looking at this is that housing prices need to fall below the level prior to the beginning of the boom. That means we'll fall to around 1999 to 2000 level prices. This will certainly stop the abundance of credit that was available on the market.
No,we need to go even lower than 1999 prices because of inflation.
Another way of looking at this is that housing prices need to fall below the level prior to the beginning of the boom. That means we'll fall to around 1999 to 2000 level prices. This will certainly stop the abundance of credit that was available on the market.
I agree... almost. They'll probably fall to pre-bubble prices, but with inflation. The numbers won't look the same - 8 years of low levels of inflation will still tack on something there.
I agree... almost. They'll probably fall to pre-bubble prices, but with inflation. The numbers won't look the same - 8 years of low levels of inflation will still tack on something there.
I disagree only because this will be an over correction in the market. That is why I don't believe inflation will play a part in this. The government will not be able to generate inflation quickly enough to counteract this fall in houses.
Don't forget that with inflation comes a rise in oil prices which will cause consumers to back away from houses for the time being. The government is stuck between a rock and a hard place, as they ought to be. After all, it's not like the are a highly profitable multi national company with highly competent management.
The question that should be asked is what's the source of inflation? A lot of people don't seem to get this. Housing was not going up because of inflation. It was the main channel for it. It caused it. This created enough momentum for oil, commodity and equity leverage to add more money. Banks loan freely to buy assets that are rising in price, which cause them to rise in price... Housing was at least a 50 year bubble. Population growth, interest deduction, Fannie, Freddi, GNMA, first time home buyer assistance, all kept adding fuel to it. Housing kept pumping more and more bank credit into the economy. That is why Japan after 20 years still has not recovered. There is only one good way out of it but I am not the treasury secretary.
As I explained housing was a major source of inflation. Since they are over priced relative to rents and wages all that was left was the ponzi effect. So housing is out. Wages cannot support their price. All money comes from banks or the treasury. Since the treasury has done nothing but fix bank books that leaves bank credit or more debt to cause inflation. Oil is about the only thing that has any potential to draw bank credit out but its not enough. Forget about equities. The only thing that has enough ability to cause bank credit to flow is real estate but its overpriced. If one will observe the credit cycles one will notice they occur every 25 years or so but this last one was extended by government intervention to last much longer into an over 50 year mega trend.
Its really very simple our money suppy grows with housing and shrinks with housing as long as we conduct commerce in bank credit. The banking cartel is not about to give up its money creation monopoly so as of now we are looking at severe contraction. The only money that has been expanded is bank reserves which are nothing but book entries. If it does persist long enough we may have destoyed enough capital to cause currency devaluations down the road but I see nothing but an economy starved of USDs as of now. The only thing that will threaten the USD is political instablity in the near term.
I disagree only because this will be an over correction in the market. That is why I don't believe inflation will play a part in this. The government will not be able to generate inflation quickly enough to counteract this fall in houses.
Don't forget that with inflation comes a rise in oil prices which will cause consumers to back away from houses for the time being. The government is stuck between a rock and a hard place, as they ought to be. After all, it's not like the are a highly profitable multi national company with highly competent management.
That's true - I have no idea how much overcorrection there will be. I think in the end it'll turn out to be a regional thing. Places that fell the most may have the most momentum to stop before things stabilize and pick back up. I moved from a place with a fairly large bubble that's now experiencing a pretty bad market to one that doesn't seem to have had one at all where things are more or less fine. It's like going to different countries or times.
I'm not disputing that home prices in general will fall but a better graph might have been historical mortgage payment:income ratios. For example interest rates on loans have fallen substantially and while home prices went up in reality the total spent probably didn't go up nearly as much.
In addition home prices have typically followed the 3:1 ratio of median household income x 3 and we are right around that benchmark now.
When we say the government will inflate our way out of this problem we have to ask...will incomes in the private sector rise in tandem with inflation? Will you get a pay raise of say 10% a year? I don't think in our global landscape that is realistic. If there is inflation without income growth then affordability will nosedive. That is not a good situation.
Also, there are other consequences. What will be the effects of inflation on the currency? What will be the behavior of all the foreign countries holding our massive amounts of debt? Will they go into a panic and start offloading our debt instruments?
The $50 billion program to help troubled homeowners is just another way to benefit the banks who made the bad loans. Debt that cannot be paid MUST be written down. The banks should be accountable for their irresponsible lending and take the losses. Instead Obama's plan -- a plan that is doomed to fail -- is to artificially inflate the cost of homes and keep the debt in the system and force taxpayers to pay the interest on this debt for decades to come.
When you have an economy overladen with debt, the interest on that debt will continue to suck more and more money out of the economy where more households, state and city governments, and businesses fall further and further into debt peonage.
Think of this debt as a giant black hole, if you will, an abysmal monster, which the government keeps feeding. As this sink hole grows and grows through the miracle of compound interest, it sucks more and more people, lives and homes into it.
Until the government writes-down debt and begins regulating the banks, this is the future we are headed into.
Last edited by Woof Woof Woof!; 03-01-2009 at 02:16 PM..
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