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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (19511)12/26/2004 4:43:29 PM
From: Rational  Read Replies (3) of 116555
 
There is an inconsistency in the logic of this article. It says "deflation" will burst the housing bubble. But Japan shows (as discussed in the article) that deflation also results in historically low cost of capital, which tends to keep real estate prices afloat. Japan just raised 5 trillion yen at zero cost of capital.

Excessive global supply of money will keep costs of capital subdued for a long time. This is why there may not be any secular drop in house prices. Real estate prices will drop depending on local economic conditions. If, for example, Bush cuts Federal payroll as indicated by Snow that he would, the Wash DC area house prices will dramatically drop. Loss of personal income will also dampen the rise in housing prices in many areas like midwest.
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