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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (69822)9/15/2006 10:54:54 AM
From: GraceZ  Read Replies (1) of 110194
 
Well Adam Smith accounted for rising land prices during periods of low interest to individuals wanting to employ their capital close to home in times when risk was not rewarded with high returns. If he was remarking about this in Wealth of Nations one can surmise that the phenomenon is older than the ubiquitous mortgage financing we enjoy here in the US.

The thing people always forget, including buyers, is that houses are always bought for cash. The cost of the money to buy the house and the cost of the house might be confused in the mind of the buyer but they are two different transactions which historically have been correlated in some periods and in others completely uncorrelated. Financing was cheap in the 1950s and financing was available to pretty much anyone who had fought in the War but the supply of houses was unconstrained by freeing up the huge War machine and new mass building techniques so the price of houses were stable.

This housing price adjustment has been pretty wide spread and worldwide (as has the worldwide trend towards lower inflation rates) and housing has risen in places where there is little mortgage financing. It rose more in the developed countries where there is mortgage financing but most of the ROW doesn't share our ease of finance, yet house prices rose none the less.
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