Tilted Forum Project Discussion Community - View Single Post - Real Estate bubble

Yakk · 01-26-2005, 01:19 PM

US has hugely high debt:income ratios
US has slow growth in rental income growth (no shortage of rental supply)
US has interest rates that are near zero
US is borrowing lots of money from overseas.

Interest rates can't go down. Income from owning a house doesn't look like it is going up. If interest rates every go up, in order to, say, encourage overseas investing in US debt, the cost of all those morgages is going to go up.

Which will drive people to sell. Which will drive down prices. Which will make banks demand repayment of unsecured morgage debt (possibly when refinancing happens). Which will drive people to sell. Which will drive down prices.

I have seen only one attempt to rationalize the current housing bubble -- because real estate is an investment not correlated with stocks, it gives it a premium on it's non-capital rate of return. This fact was discovered recently, which justifies higher prices than would be historically justified.

The thing is, this seems a hell of alot like the justification behind the hugely high stock market prices in the 90s. And this justification was used a few years back, and housing prices are way way over that level now.

01-26-2005, 01:19 PM	#5 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	US has hugely high debt:income ratios US has slow growth in rental income growth (no shortage of rental supply) US has interest rates that are near zero US is borrowing lots of money from overseas. Interest rates can't go down. Income from owning a house doesn't look like it is going up. If interest rates every go up, in order to, say, encourage overseas investing in US debt, the cost of all those morgages is going to go up. Which will drive people to sell. Which will drive down prices. Which will make banks demand repayment of unsecured morgage debt (possibly when refinancing happens). Which will drive people to sell. Which will drive down prices. I have seen only one attempt to rationalize the current housing bubble -- because real estate is an investment not correlated with stocks, it gives it a premium on it's non-capital rate of return. This fact was discovered recently, which justifies higher prices than would be historically justified. The thing is, this seems a hell of alot like the justification behind the hugely high stock market prices in the 90s. And this justification was used a few years back, and housing prices are way way over that level now. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.