Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Rational who wrote (19564)	12/27/2004 12:15:55 PM
From: mishedlo	Read Replies (1) of 116555

The fall in US$ will make American real estate values in terms of US$ go up much higher. My theory -- that there is no imminent secular collapse in American real estate prices -- has not gone wrong at all! In fact, it is being proven right every passing day by rising real estate prices across the U.S. First off, your theory is NOT proven at all. I suggest you are correct for the WRONG reasons. Home prices have risen not because of the falling US$ but because of ... 1) extremely low interest rates 2) loose money 3) short term propensity for people to buy more home than they can afford 4) extremely lax lending standards The fact that you have been right suggests NOTHING about your theory of a falling US$ being good for home prices IMO. You ignore other HUGE factors and put the reason on a falling $ and that IMO is preposterous. As soon as 3 and 4 tighten the party is OVER IMO. Falling real wages in the face of rising oil prices, rising property taxes, rising medical expenses and poor job prospects do NOT bode well for home prices IMO regardless of waht the US$ does. I have a far simpler theory: Home prices can not rise faster than wages over the LONG HAUL unless interest rates compensate for the difference Home prices have risen faster than wages over the last several years by the combination of factors mentioned above. Home prices can buck that trend only for so long. Either wages catch up (I doubt they will), or housing stalls or reverses. We are seeing that in the UK and OZ right now, and we are seeing HUGE signs that it is about to happen here. If people can not afford more expensive houses, at some point they will stop buying them regardless of what the US$ does or does not do. That is a practical as well as logical extension of my theory, and if you think about, should make far more sense that home prices will keep going up if the US$ keeps falling. Mish

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