Dirty Secrets
2008-04-12
Posted by: badanov
Now there is another way of looking at this. Many people ask me when I think the housing market prices will stabilize. I say the that houses will sell when people will be able to buy them. After the long run up, median prices have outstripped median incomes by so much that the (vast) majority of housing stock is out of reach of the everyday working couple. People like my mon and dad. It's as simple as this - houses won't start selling until people can buy them.
The dirty secret of the US housing market is that this run up in price is due not to increased demand for affordable housing but an artificially high supply of expensive homes, and a concurrent run up in prices of existing homes, just to make bond traders, bankers and others happy.
My theory is the the US housing industry missed the fundamentals about 25 years ago and now we have an oversupply of expensive homes few people are willing to buy and can pay for, and even fewer lenders are willing to loan on.
And at this point the US housing industry appears to be in for a long period of retrenchment.
My guess is that the Federal Reserve knows this and they are charting a course of monetizing the US housing industry, and thus setting inflation loose to mask these dislocations.
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