Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Clarksterh who wrote (50505)	1/20/2006 10:32:34 PM
From: ahhaha	Read Replies (2) \| Respond to of 110194

You appear to want to argue such valueless arguments as whenever real estate goes up, and no matter how much it goes up, as long as incomes are going up then the real estate price is not riskier. Close. By that logic you would say the same even if incomes went up by 5% and real estate up by 100%. RE appreciation can race ahead of income growth on a sustained basis without causing excesses. Whenever there's a lack of supply of something price must rise to induce suppliers to act. Single family dwelling construction has been constrained by many factors for decades. The result has been the price must rise sufficiently to overcome all obstacles, and the obstacles have been built tall. This has nothing to do with income growth or just about any other macro economic factor, although obviously income growth would be an eventual and inevitable constraint on the rate at which RE can appreciate to balance supply and demand. Doesn't mean RE can't race ahead and do so stably. This is happening across the world in just about everything including gold. You probably haven't been aware of it but the US and ROW have been through 20 years of extended recession. A sustained recession or constrained growth was the price CBs everywhere had to pay to cool the propensity to inflate. a) RE Price/Income (even adjusting for interest rates) is extremely high. Grace has given so much data arguing against this claim on this thread that it isn't worth addressing. b) RE Price vs Rents Rents are relatively low and in theory, should rise. In the theory of rent a working axiom is rent = instantaneous out-of-pocket cost to hold the near equivalent in single family dwelling. This means that the true cost of owning single family dwelling = rent rate of functional equivalent. Thus, rents and costs to own are always going in and out of equilibrium, and the rate at which the market is satisfied, or time to convergence, is a function of price growth and trend durability. If price has been rising rapidly as it has since 2000, convergence doesn't occur, and the market isn't yet satisfied. Not exactly a trustworthy source since they come with a large agenda. Clearly you fail to understand that it's in the NAR's interest to be absolutely accurate with this kind of information. However, one need not lean on the NAR for confirmation. They're available from other sources like banks or think tanks. I'd love to see how that was measured. Consider a bank underwriting a mortgage. Shouldn't a bank know the quality of its loan petitioners? All banks in the RE biz take mortgage loan applications, investigate their integrity to the nth degree, assemble and study the accumulated data, in order to determine whether loan quality is deteriorating or improving. They don't trust you more than you don't trust them. It doesn't take much thinking though to realize that in an economy that has accelerating real GDP, that loan quality is improving. And I'd also note that regardless of 'trustworthiness' if you've been allowed/forced to stretch really far that you are vulnerable to problems. Yeah, well it's clear you haven't applied for a mortgage loan any time recently. Bubble" is a concept, by the way, which has no clear definition. Semantics, since by definition a bubble can only be asserted absolutely after the fact. Your semantics. You use the term. How can you validly do that given your above claim? I think the best indication of a bubble is the amount of inherent lubrication that exists to enable a bursting What happened to your rigor? You merely replace "bubble" with "lubrication". Does that mean you won't be able to determine how much "lubrication" there is until after the fact? - e.g. the huge number of interest only loans with balloon payments which will almost force the sale of the house if the prices fall even modestly. Non sequitur. Your "bubble" requires falling prices, but you haven't given the cause of the falling prices. Why should a failure to meet a balloon payment disturb the need to address the dearth of supply? The dearth is a much greater determinant than the erosion implied by a subset of the market. Even in a flat price environment balloon payment failures wouldn't cause the average price to decline. This is an argument that the tail wags the dog, but the banks hold the dog, not the mortgagees. The banks hold the balloon, and they don't want it to burst, so before that comes anywhere near, they will take steps to preclude it from doing so. On the other hand, maybe your argument is banks are stupid and you are smart, that is, you're far more clever they are. Thereby greasing the further fall if a decline gets started. This is classic error in logic. I won't call it petitio principii, but what you're doing is begging the question. You assume facts not in evidence for your "lubrication" to work. RE prices will fall if they fall. Profound.

To: Clarksterh who wrote (50505)	1/21/2006 12:25:41 PM
From: gpowell	Read Replies (1) \| Respond to of 110194

b) RE Price vs RENTS Rent is determined by current supply and demand, while home prices are in part determined by investment potetential, or future supply and demand. Home prices may be quicker to adjust to shifts in rational expectations while rents only adjust when these expectations are realized. The spread simply reflects preferences and constraints under equilibrium conditions and cannot be used to determine value, except under equilibrium. Message 19695182 a)RE Price/Income (even adjusting for interest rates) is extremely high. Message 22043263 Also: Heterogeneous productivity, thus guarantees “inflation” in certain products. Message 21966901