Wednesday, January 25, 2017

Denver Rents and Prices

In Denver, apparently  (HT:MY) rising supply is leading to a drop in rents, while home prices continue to rise.  This is treated as a mystery, or as a problem of affordability.

But, this is basically what needs to happen across the country.  Affordability is not what is keeping households out of ownership right now.  In any path forward to normalization, rents will decline and prices will rise.  That is even the case if interest rates rise.  In fact, in normalization of the housing market, rates will rise as prices rise and rents moderate.  The question is whether rates are pushed up arbitrarily by monetary authorities or naturally by markets.

I take this as a good sign, even though national indicators still seem mixed.

10 comments:

  1. You might like the first comment to that article...interesting.

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    1. That is interesting.

      We need a Newton's 3rd Law of Economic motion - for every action there is an equal and opposite reaction.

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  2. Still no signs of life here in California. Pretty much the only construction going on is high-rises in the small downtown areas. SFR construction is dead and mid density housing is basically illegal.

    http://www.abundanthousingla.org/2017/01/03/dont-call-it-a-boom-la-housing-growth/

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  3. Scott Sumner's latest post is interesting for what it misses....

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  4. Scott Sumner's latest post is interesting for what it misses....

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  5. That one too. No mention of property zoning.

    The below is a completely fascinating paper from the NY Fed. Okay, not me, a wag, but from the NY Fed.

    https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr541.pdf

    “The boom-bust in U.S. house prices has been a fundamental determinant of the recent financial crisis. The securitization process that eventually lead the financial sector to the brink of collapse crucially relied on expectations of ever-increasing house prices. Understanding the causes of these house price dynamics is crucial for preventing a repeat of a similar situation in the future.
    Large and widening current account deficits accompanied soaring house prices, especially during the five years before the eruption of the crisis (figure 1). These two variables were perhaps the most discussed indicators of U.S. imbalances (Greenspan, 2005). Interestingly, the negative correlation between house price dynamics and current account balances is not specific to the U.S. but rather a robust global phenomenon, affecting advanced and emerging market economies alike(figure2).1 Countries that witnessed house price boom and substantial external deficits (such as Greece, Iceland, Ireland, Spain and the U.S.) also experienced among the highest degrees of financial turmoil during the crisis.2”

    Fascinating. Run a big trade deficit and boom your house prices….

    Huge trade deficits lead to gigantic and unstable house price booms?

    Who knew? But I think the mechanism still requires property zoning….

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  6. Add on:

    The above paper---a paper about house prices!---does not even mention the topic of property zoning.

    Egads. Property zoning is not even on the radar, let alone central to discussions about house prices. At least in orthodox macroeconomic circles.

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  7. https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1779.en.pdf?7edad23ab5613b9693606b94616231eb

    https://www.imf.org/external/pubs/ft/wp/2009/wp0979.pdf

    maybe of interest

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    1. Thanks Benjamin. Important to remember that bank failures were also very late in the game - 2009 and after. There was so much time to right the ship, but we refused.

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