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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (46998)12/10/2005 6:10:24 PM
From: Wyätt Gwyön  Read Replies (2) of 110194
 
THERE IS NO HOUSING BUBBLE AND IT IS NOT ABOUT TO "DEFLATE."

We don't see a bubble in the housing market. It's true that homebuilding, real-estate transactions and mortgage credit are industries that have boomed thanks to low interest rates. We also agree it's about time for them to contract with the next phase of the business cycle. However, we find that housing prices have very little to do with interest rates.

On a national-average basis, U.S. house prices rose 29% between the end of 2001 and the end of 2004, and 20% when deflated by the CPI.

But this is a mismeasurement of the "real" increase, since housing and other assets trade in fluid and fast-moving markets, while the CPI is one of the tardiest imaginable measures of inflation.

When the price of housing is deflated instead by the best benchmark we know for expressing the dollar's falling value -- an index of gold, silver and platinum prices -- we find that it has actually been declining in real terms since the end of 2001.

With precious-metals markets continuing to advance, we anticipate that housing prices, measured in nominal dollars and on a national basis, are more likely to accelerate than decline as inflation takes hold.

online.barrons.com
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