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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: nextrade! who wrote (24333)10/7/2004 1:06:23 AM
From: Mike JohnstonRead Replies (3) of 306849
 
Thanks nexttrade for a good article. I think Greenspan should read it. It is a shame that no US publication will write the following truths about the real estate bubble:

1. Inflation is not wealth.

2. Higher house prices entail a lower not higher standard of living ( if a house costs 5x salary instead of 2x salary)

3. Rising house prices are a sign of economic weakness not strength.

4. Real estate bubble does not create wealth but it transfers wealth from the middle class to real estate brokers and speculators (one needs at least 2 houses to benefit from the bubble )

5. Productivity statistics are totally false. Assume a real estate agent in Las Vegas sells 20 houses a year at 200K a pop, working 40 h a week. So his production is 4 milion a year. Normally productivity of the agent would be higher if he sells more houses in the same amount of work. But what happens if he sells the same amount of houses ( 0% real productvity increase) but the prices go higher. Now if prices double and next year he sells again 20 houses but for 400K each now his production is 8 million for 40 h a week, 100 % increase. Now if official inflation is reported as being at 3 %, you have a 97 % increase in productivity. Then Greenspan can boast how great productivity is. Absurd. The agent did not sell 97% more houses.
IF PRODUCTIVITY WAS TRULY GREAT IN THE ECONOMY , HOUSES WOULD GET CHEAPER IN RELATION TO INCOME.
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