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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: orkrious who wrote (21890)1/21/2005 9:28:45 AM
From: Tommaso  Read Replies (2) of 116555
 
When we think about these mortgage debts and home equity lines, we tend to think about the most flagrant examples of that kind of foolishness.

Actually something like 40% of U. S. homeowners hold their houses free and clear of any debt. I would like to see some detailed and accurate statistics as to how many of those who owe money on their houses are paying down longstanding mortgages.

The figures showing the total debt as a percentage of market value of housing certainly are appalling and a lot of people and credit institutions will probably be ruined when housing values decline.

But I think this disaster, or these individual disasters, will occur in a context of price inflation in other areas. Groceries and gasoline have already increased something like 20% and 50% in cost, respectively, over the past year. Medical costs and the costs of private education (and public universities) show no signs of ceasing to far outrun official inflation figures. Indeed, the costs of essentials, or near-essentials, will contribute to the real estate catastrophe, as people cannot meet mortage payments.

So far, the housing bubble has not even figured in inflation calculations; those use rents, not house prices.

Stock market declines can certainly go right along with rising inflation: see the 1970-1974 period. And markets did not really recover until 1982 when inflation had finally topped out.
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