High inflation will make home prices come into equilibrium faster?

Discussion in 'Economics' started by crgarcia, Feb 21, 2008.

  1. Therefore making it easier to get out of the subprime mess?
  2. Maybe. Might make bigger problem elsewhere.

    All debt, including print-money, eventually gets accounted for by somebody.
  3. pitz


    They tried to pump the tech industry back up with 1% Fed Funds rates. Didn't work.

    Don't see why it'll work with the housing industry either.

    The issue is that the industry has just built far too much capacity for the demand available.

    Prices will keep dropping until such a point where housing construction comes to a complete standstill, all the builders are bankrupt, and prices reverted far below the long-term 'norm' of 3X annual income.

    In California, that probably means there's at least another 60% down to go.

    Any new money created by will go into other areas of speculation. Hopefully into technology, but more realistically, probably into commodities.
  4. until household income starts to beat inflation, inflating will not work but make it worse. The $$ must be in the consumers hands. Everyone will need a sizeable payraise.
  5. No.
  6. Agreed.

    No fed stimulus or refunds will move this economy. If the govt wanted to see explosive growth and recovery from this inflationary/credit crunch situation they would cut income taxes in half and stop spending. And create tax incentives for corporations to domicile in the USA. But they are not doing these things. Instead we are moving the other direction. Things will work themselves out, they always do. But it wont happen quickly.
  7. Because Tech didn't have any profits. My very first trades were shorting tech, because many of those companies were burning hundreds of millions with no profit potential, ever. Fed funds could have been at 0% and it still would have done nothing.

    8% mortgage at $200,000 = $1,467
    4.5% mortgage at $200,000 = 1,013

    Lowering interest rates by themselves makes higher priced homes more affordable.

    This is the biggest Bullshit assumption of all. Let's say a homeowner wants to sell his home for $300,000 since he has a $300,000k I/O mortgage, but it's market value is only $250,000. With 5% inflation, it's gonna take less then 5 years for the market value to catch up.

    Any new money created will go into other areas of speculation such as technology.. commodities?! You have a very fuzzy view of economics. It's more laughable then core CPI.
  8. pitz


    There are plenty of tech firms that would have been economic if fed funds were at 1%, and the money went into them. I mean, at 1%, a P/E of 100, + some growth is tolerable and makes sense. There were *plenty* of firms, Cisco, Intel, you name it, that had P/E's well under 100.

    But the speculative money didn't save those stocks either. The money went into housing, and now, here we are.

    Doesn't matter. Mortgage rates aren't coming down because nobody wants to lend to the sector for the same reasons that nobody wanted to lend to the tech sector after the crash -- just too risky, and no good prospects of repayment.

    Only if people actually want to lend, and affordability is still *way* off the scale with respect to incomes, which are probably now in decline due to a recession.

    Why would you get 5% inflation? More like 5% deflation, as houses revert to valuations that are more representative of people's incomes and the future growth of people's incomes.

    Imagine housing as a stock. What kind of multiple would you pay for a stock that has roughly a 3% dividend yield, and grows roughly at the rate of inflation (let's say, 3%). I'd say, a P/E of 10-12 would be the upper range of what I'd personally pay for such a stock. Leveraged, of course, the P/E would have to be even lower.

    What are houses trading at right now? P/E's in excess of 30 in many instances.

    Fuzzy view? WTF are you talking about? Housing's dead. The bubble is collapsing. Its not coming back for a very long time. Find the next bubble (and there will be another bubble somewhere), and run with it.
  9. Adobian


    Inflation at the same time with rising unemployment rate and income/wage cut spell D-I-S-A-S-T-E-R.

    I hope the new president will find ways to get rid of Bernanke.
    #10     Feb 23, 2008