The Reality of the Housing Bubble, and why delusion rules for the misguided
Sun, 28/02/2010 - 20:43
The Reality of the Housing Bubble, and why delusion rules for the misguided
Hugh Pavletich wrote this article back on November 13th, 2009:
Opinion: Americans still ignoring structural housing issues as Kiwis react to prevent more bubbles
http://www.interest.co.nz/ratesblog/index.php/2009/11/13/opinion-america...
In it Hugh highlighted this statement:
Quote:
THE REALITY IS THAT THE ONLY TRUE MEASURE OF SCARCITY AND ABUNDANCE – IS PRICE.
I did not, and do not agree with that. I think it is fundamentally wrong.
I reviewed the article
I was then directed to this article:
How Urban Planners Caused the Housing Bubble by Randal O’Toole
October 1, 2009
http://www.cato.org/pubs/pas/pa646.pdf
which I then reviewed in some detail here:
How Urban Planners Caused the Housing Bubble by Randal O’Toole 1st Oct 2009 - My Review
http://neuralnetwriter.cylo42.com/node/2383
and I wrote this:
Factors Affecting House Prices by Steve Netwriter
http://neuralnetwriter.cylo42.com/node/2361
I mention this because I've just come across this excellent article:
Does rising house prices imply a housing shortage?
August 27th, 2009
http://cij.inspiriting.com/?p=706
Quote:
There is a common argument that Australia has a housing shortage because prices are rising. The flawed reasoning goes like this: “Under the ‘irrefutable’ law of demand and supply, if prices rise, it must be due to demand outstripping supply i.e. shortage situation.”
It is a very good article, and it explains why price IS NOT a good indicator of scarcity and abundance.
It shows how price can vary greatly from the equilibrium level, and can be pushed up simply by speculative expectations.
This reply is relevant 
Quote:
Do you notice at the top of a bubble people come up with all ludicrous ideas of why the bubble should continue.
Housing shortages...the new era...the super cycle....peak oil....they all end the same way.
Why do speculators keep inflicting pain on themselves?
I think there is starting to be tighter credit. The big four have increased cash deposits required on home loans. Although i dont think this is very significant (yet).
I think the biggest catalyst will be when unemployment continues to rise and the youth are the first ones to get the sack - the ones taking on home loans with their first home owners grant at inflated values.
.
Brilliantly said:
"When that happens, the self-reinforcing feedback loop for higher prices will become a self-reinforcing feedback loop for lower prices."
Maybe those who can't see the bubble need better glasses
