>One of the main points is that relative to incomes, the assumption of debt in recent years is WAY off trend.
Which is what I am trying to explain with the effect of 6-7% rates vs. historic >10%. Sure, there were excesses, but when debt is cheap its usage will not rise linearly with interest drop, but rather somewhat exponentially. E.g. if I got a 1-2% loan right now, I would probably buy another 10 houses. ;)
So I am asking whether people saying that it's "WAY off trend" account for the fact that the debt was cheap and is still cheap?
>with tightening credit and credit covenants, the demand must pull back, reducing the inflated "value".
Yes, but demand already fell and it already reduced the value. In some places quite significantly. The real question in this inning is whether the value was reduced enough, overshot, undershot or what. And whether the demand at current prices will reappear once people are not scared.
I am not saying that we are in the clear, but I am also far from bearish.
I would be probably more concerned about resource inflation than with the credit markets. |
