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

To: GraceZ who wrote (69782)	9/14/2006 1:26:32 PM
From: Mike Johnston	Read Replies (1) \| Respond to of 110194

That theory doesn't hold water in a current highly inflationary environment and rising inflation expectations.

To: GraceZ who wrote (69782)	9/14/2006 1:26:38 PM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

It was the best of times. A once in a lifetime period of toxic loans with 1% pay rates, very low interest rates and high perceived inflation along with double digit home appreciation in perpetuity by the people. Even the brilliant minds here can't figure out what is next. Stagflation, deflation, muddle through? All I know is the housing boom is over and there will be hell to pay because of it for many..It will be the best of times for savy investors and from what i gather there won't be many of us left. kind of like 1993 all over again<g>

To: GraceZ who wrote (69782)	9/14/2006 3:41:56 PM
From: the_wheel	Read Replies (1) \| Respond to of 110194

Hey Grace, I always enjoy reading your posts, however, this one sounds like you may have made use of the BS generator. The main reason I say this is that I just read one other of your posts: < "The reason they're willing to pay more is because they have an expectation that the house will appreciate." Message 22811030 > "home prices could have been making a one time adjustment to worldwide lower inflation expectations." Didn't you mean one time adjustment to price of eggs in China? It's probably probable just not correlated causally. Am I being clear here? Seems you are saying your sister bought a high price house cause she thought the price was going up, but the price went up cause the house thought inflation was going lower. Who's doing the thinking here?

To: GraceZ who wrote (69782)	9/15/2006 10:19:57 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

I know that sounds counter intuitive, but consider that a house can be looked at as an investment that yields a return. In this case, the return is housing services. The value of those future housing services has a net present value and in a low to falling inflation rate environment the net present value rises the same way the value of a bond that pays a fixed income over it's life rises when inflation expectations fall the reason it sounds "counter intuitive" is that it is wrong. that is a very confused theory. it is much easier to recognize that housing prices have gone up somewhat because interest rates are lower. obviously, if you compare a 10% mortgage with a 6% mortgage, assuming the same dollar amount monthly payment, the 6% mortgage will have a higher principal amount. there is no need to consider claptrap about "housing services" being discounted to a higher NPV due to reduced inflation expectations. just look at the interest rates. of course, interest rates themselves reflect inflation expectations--the expectations of wealthy bond buyers, not the expectations of unwealthy people who need mortgages to buy homes. not that the bond buyers' expectations will prove accurate, any more than double-digit yields on 30yr Treasurys accurately forecasted inflation from 1981. today's housing bubble reflects more than low interest rates, of course. it also reflects declining credit standards (credit bubble). additionally, it reflects a bubble mentality where buyers in fact IGNORE the "service" value of homes (as opposed to performing some NPV discounting based on abstract service value claptrap) and focus on anticipated profits from price momentum. they might as well be trading tulips, or crappy tech stocks circa March 2000. thus buyers ignore housing services in expectations of higher housing prices (expectations of increasing and continued inflation, not reduced inflation expectations as per your suggestion). they are enabled to pay higher prices due to lower interest rates and lower credit standards. your suggested analysis could not be more wrong if it tried.