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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (18209)	3/7/2004 2:31:32 PM
From: bozwood	Read Replies (2) \| Respond to of 306849

I read the interview and was interested in that chart as well. His conclusion, largely, was that stocks were overvalued due to the extremely low interest rates used to discount cash flow back. However, he comes to the conclusion that housing isn't in a bubble because housing, in his opinion, is ultimately tied to corporate profits (because, as I understand, the cash flows through to individuals and allows them to purchase homes). It's an interesting conclusion, but it doesn't seem consistent to me. First, he does not come to a similar conclusion that low rates have driven housing prices as they have stock valuations. Ultimately people are "valuing" real estate based on their monthly payments (among other things) and that payment is greatly influenced by potentially unsustainable low interest rate for mortgages. It doesn't seem to me that he can say interest rates have an undue influence on corporate valuations and not housing. Second, if we assume he is correct about corporate profits ultimately driving housing prices, one must question how much of the corporate profit growth we have seen has come directly from lower rates and even home lending. I would imagine that this linkage would be called reflexive in Soros' terminology and not necessarily causal.