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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Tommaso who wrote (4045)4/10/2004 9:01:15 AM
From: Wyätt Gwyön  Read Replies (1) of 116555
 
If you think that the goverment has lost control, then the best thing is still to get hold of a house using a 30-year mortgage. Millions of people instinctively realize this and that's why house prices are jumping.

while i almost always agree with what you say, i beg to differ here. i am with Elroy in thinking that long-term housing prices match INCOME growth as opposed to inflation in this or that consumer price. and the one HUGE thing that has not inflated these past few years is income. this means people are in a very different situation from any previous time in the post-war period, in that they cannot expect wage inflation to lower the real cost of their mortgage payments (and thereby increase the value of their houses).

and in fact what we have seen is that "affordability" has been stretched just as tortuously as any government definition of hedonic price reduction in its statistics--people put less down (huge loan to value ratios), rely on historically low rates and also on ARMs (less flexibility if rates DO rise), and qualify on much larger percentages of disposable income to mortgage payment.

so, in an environment where rent prices nationwide are continuing to track flagging income, i think housing is not a rational response of consumers, but rather a bubble, just like the stock bubble of the 1990s.

they are irrationally expecting that 1) qualification requirements will get even easier, 2) rates will move lower, AND 3) incomes will move higher. i think only one of these three things has to move in the opposite direction and the housing bubble is screwed.
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