Housing Bubbles - Forever!
Ready to take advantage of the new 4.5% mortgage giveaway? Yes - if you have $99 and job, you can buy a home! Steve exposes the insanity.
The alleged concern being addressed is that the housing "correction" will overshoot and "undervalue" housing. But there's no natural price of housing. The value of a home is permanently distorted in two very simple ways. First, alone among consumer debt, mortgage interest is deductible, so right there it sucks up money that otherwise would be going elsewhere. Second, the 30-year mortgage is an unnatural financial instrument that would never exist in its ubiquitous state without government guarantees. The correction can't "overshoot." There are no artificial forces suppressing housing prices. If people aren't buying houses at their already inflated (by tax breaks and guarantees) levels, inflating them more can only add fuel to the fire.
The alleged concern being addressed is that the housing "correction" will overshoot and "undervalue" housing. But there's no natural price of housing. The value of a home is permanently distorted in two very simple ways. First, alone among consumer debt, mortgage interest is deductible, so right there it sucks up money that otherwise would be going elsewhere. Second, the 30-year mortgage is an unnatural financial instrument that would never exist in its ubiquitous state without government guarantees. The correction can't "overshoot." There are no artificial forces suppressing housing prices. If people aren't buying houses at their already inflated (by tax breaks and guarantees) levels, inflating them more can only add fuel to the fire.
posted by ziel | 12/05/2008 08:13:00 AM
2 Comments:
Lower home prices should be a joyous thing for 90% of all Americans, saving them oodles in interest payments over the years that they could spend in other areas of the economy.
We wouldn't want to "re-inflate" car prices, gas prices, lawnmower prices, computer prices, hooker prices if you are the taxpayers of New York during Elliot Spitzer's governorship, food prices, IPod prices, window prices, door prices, mailbox, shrubbery, movie, CD, DVD, garbage collection, or clothing prices.............................................would WE???
I wonder who benefits from high housing prices? What group would that be? HHmmmm.............do they have pull on Capitol Hill?
A real estate bubble on benefits speculators, lenders, developers, and builders, house flippers (I know a couple of these), and those who buy debt.............it just makes life much more expensive for everyone else. If one is going to sell their house and go live in a cave it might be a good thing.
"no natural price of housing" ...
What about replacement cost as determined in your insurance policy? Both the materials and labor can be quantified and insured to a specific amount. This may be a base price or value for your home, but it does determine a price. Other factors: location, condition, amenities, etc then help determine relative value.
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