Ted, The argument is that with interest rates so low, people are doing whatever it takes to get into a house. The rising vacancy rate in the rental markets supports that thesis. During the past two years, the average rent has actually gone down in Seattle which housing prices continue to go up.
It sounds like the situation in Seattle isn't like the situation in O.C. I haven't looked at the figures, but it seems around here, rent is going up and the vacancy rate of rental properties is going down. Sounds like a recipe for a bursting bubble in Seattle, especially if the ratio of monthly mortgage payment to rent is going up.
The fear is, of course, that when interest rates go back up, demand will collapse completely, fulfilling your argument that we have a bubble like situation. However, in this case, its not increasing prices and higher profits to be realized, common bubble traits, that have drawn people in but rather, low interest rates. That's why economists don't refer to it as a bubble.
The bubble is the increasing value of the existing homes. Some homeowners realize the gain in value by selling, some by refinancing, and some by taking a second mortgage. All of this new "funny money" gets pumped into the economy one way or another, and the net effect is an artificial recovery of sorts.
Of course, once the prices of the homes fall, those who either bought at the higher prices or took out loans based on the formerly appreciated value will be the ones left holding the bag. Then they'll either have to stay stuck in their homes for the "long term," or they'll have to eat the difference between the loan amount and the new price. Either way, their net assets will have diminished, and the "funny money" that's been supporting the local economy will disappear.
Tenchusatsu |
