My reply: Opinion: Americans still ignoring structural housing issues as Kiwis react to prevent more bubbles by Hugh Pavletich
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Fri, 13/11/2009 - 10:56
Opinion: Americans still ignoring structural housing issues as Kiwis react to prevent more bubbles
November 13th, 2009
By Hugh Pavletich
http://www.interest.co.nz/ratesblog/index.php/2009/11/13/opinion-america...
My reply:
Quote:
Well, I want to test one of Hugh's two theories."THE REALITY IS THAT THE ONLY TRUE MEASURE OF SCARCITY AND ABUNDANCE – IS PRICE"
So, in a situation in which there is a constant population, and a fixed number of houses, am I right in saying that scarcity and abundance would be constant?
If your theory is correct, I assume that also means that house prices would also be constant.
Is that your assertion?
If so, I think it is incorrect. As we have seen, house prices rise when there is an expectation of rising prices, and when people have an expectation of a capital gain.
When that speculative bubble pops, the process reverses, and prices fall.Yet the scarcity and abundance have remained constant.
Therefore prices are not a good indication of scarcity and abundance.
Fri, 13/11/2009 - 23:37
#2
The reality is complex
The reality is complex, and so I've addressed it in more detail:
Factors Affecting House Prices by Steve Netwriter
http://neuralnetwriter.cylo42.com/node/2361
Sat, 14/11/2009 - 22:48
#3
US House Price Bubble - What caused it?
What caused this price bubble?
Scarcity/abundance?
Or a speculative bubble enabled by low credit costs and overly available credit?
You can see that the population has been rising steadily.
Note that building costs have been pretty constant during the price bubble.
I'm not aware of any major creation/destruction of houses over that period substantially changing the scarcity/abundance.
The driving factors of this bubble were:
1. Cheap credit.
2. Low or non-existent loan criteria.
3. A move from stock market speculation to property speculation.
4. A change in attitude from a "saving culture" to a "borrow and spend culture".
5. Tax incentives.
6. Anticipation, and reinforcement by the media, of house price rises, leading to the idea that unaffordable loans could be repaid from capital gains.
=============
And my latest reply:
Quote:
Murray,
"Property prices don’t double in value when interest rates are 5% and credit is easy, then halve in value when interest rates reach 10% and credit is tight again."Looking at the US:
http://neuralnetwriter.cylo42.com/node/2359#comment-1890
The driving factors of this bubble were:
1. Cheap credit.
2. Low or non-existent loan criteria.
3. A move from stock market speculation to property speculation.
4. A change in attitude from a "saving culture" to a "borrow and spend culture".
5. Tax incentives.
6. Anticipation, and reinforcement by the media, of house price rises, leading to the idea that unaffordable loans could be repaid from capital gains.I see no evidence that scarcity/abundance was in any way a major contributor to that bubble.
As I think I showed above, price is not a good measure of scarcity/abundance.
Hugh,
If I understand your argument correctly, you are suggesting we build our way out of this housing price bubble. Is that right?I can understand a concern about replacing old housing stock. But as a country we need to earn money to pay for that, before we do it.
It is my view that house price bubble here will be self-correcting. ie house prices, in real terms (and that is an important point), will fall significantly.
There are plenty of available empty properties in the US. There will be no need to build affordable houses. The current stock will provide them, as has happened in the US.This is of course a side issue. The real issue is why people feel it necessary to speculate. The reason is because they know leaving currency in the bank will result in them becoming poorer.
Seeking solutions should start by seeking the REAL causes.
Sat, 14/11/2009 - 23:23
#4
UK House Price Bubbles - What caused them?
For the UK:
the price is now down to the trend line:
http://housepricecrash.co.uk/graphs-average-house-price.php
What caused the previous bubble?
Was there a surge in population, followed by a drop in population?
Were houses destroyed and then created?
No, what I think we are seeing is growing and more unstable asset price bubbles, typical of the end of a fiat based currency system.
Pricing is the product of Necessity and Desire vs supply
So, if you have something very necessary and very desirous, and in percieved short supply, people will do anything to get it.
The human paradox. We now it's bad for us, yet we still do it
Have fun
Owen
Auckland... Where the heck is that..?