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

To: John Vosilla who wrote (46817)	1/9/2006 9:56:41 PM
From: gpowell	Read Replies (1) \| Respond to of 306849

I would take it as once the market read we live in a reported inflation rate resulting in below market interest rates way below the real rate of inflation it made RE much more attractive. Mortgage rates never went below the reported rate of inflation. What is interesting in the chart is that even as the cost of borrowing declined, households waited 5+ years to adjust their portfolios in favor of real estate. But, given that real estate appears to have fully priced in low inflation expectations and the fact that households are holding more equity in housing than they have since at least 1952, if, in fact, inflation is higher than expected and/or equity holding norms reassert themselves - housing will be poised for a decline (or stagnation). To me this means that this thread was probably created about 4 years too early. In the end RE is an inflation hedge and any long term rise is due to rising household incomes, rents and costs of construction. Anything else is financial engineering or socialized programs from our federal government. I would also add that housing is a consumption item and that tastes have apparently changed in favor of bigger and better equipped homes. Let’s also realize that land use restrictions impact the productivity of housing construction and thereby we should expect to see a divergence between income and house prices, whereby housing consumes an ever-growing percentage of disposable income (this is evidenced by the 5% price increase of housing since 1952). And finally, realize that housing is an inflation hedge but that the cost of borrowing increases with expected inflation thus there should be an income and substitution effect convoluted with the desire to hold housing assets.