tag:blogger.com,1999:blog-1110014885778996459.post2227607628469378586..comments2024-03-28T11:48:09.419-07:00Comments on Idiosyncratic Whisk: Housing, A Series: Part 90 - What theoretical basis is there for this?Kevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-1110014885778996459.post-58711723105612645452015-12-01T17:02:35.950-07:002015-12-01T17:02:35.950-07:00Thanks. Interesting article. Of course, I think ...Thanks. Interesting article. Of course, I think a mistake they make is seeing the mortgage market in the 2000s as the aberration instead of seeing the current market as the aberration, which is sort of the problem.<br /><br />The credit crisis means that the obstacle to homebuyers isn't really price. It's access to any reasonable mortgage. So, I suspect that the builders don't see much advantage to competing on price. I think equilibrium home prices at today's interest rates should be 30% or more higher than they are. There must be some emergent set of regulators that are keeping new home expansion down until prices reach their natural level. Land owners will have better alternatives until buyers can bid up housing to compete as the best value. Interestingly, even though Price/Rent remains fairly low compared to the peak, it still looks to me like new building, at least in the Phoenix area, is still happening with large homes on very small lots. No back yards. I would expect this to happen if prices were back up where they should be, but it is strange that this seems to be happening even though prices seem low for those who are able to get mortgage funding.Kevin Erdmannhttp://idiosyncraticwhisk.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-82910902309009100832015-12-01T14:20:16.621-07:002015-12-01T14:20:16.621-07:00I think you're onto something regarding the br...I think you're onto something regarding the broken mortgage market.<br /><br />This may be able to explain the noticeable lack of construction of SFR's in Southern California:<br /><br />https://letsgola.wordpress.com/2015/11/28/wheres-the-ie-housing-boom-part-2-ontario-ranch/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-71714550638763390102015-11-28T18:48:11.098-07:002015-11-28T18:48:11.098-07:00Yes, mild inflation protects both property lenders...Yes, mild inflation protects both property lenders and borrowers. But the Fed cannot tolerate inflation.<br /><br />The FOMC's monomania with inflation was in effect in 2008; reading FOMC minutes is too see the "inflation" hundreds of times on the cusp of the Great Depression.<br /><br />Still, regulatory bodies are often captured by the industries that they purport to regulate. <br /><br />A Fed official viewing a property construction boom may indeed first worry that lenders will get hurt---not that consumers and the broader society will benefit.<br /><br />How else to explain Eric Rosengren's comments?<br /><br />Did Rosengren say, "This is great! A building boom! That will help lower property costs!"<br /><br />I don't think Rosengren is particularly worried about developers. Nor consumers. That leaves the banks. His constituency, after all.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-43132245060333202252015-11-28T00:09:41.232-07:002015-11-28T00:09:41.232-07:00I would expect to agree, but I think their apathy ...I would expect to agree, but I think their apathy about home prices nationwide dropping by 1% per month in late 2007 and 2008, and the decade-long stagnation in mortgages outstanding suggest that, if they are secretly protecting bankers, they are doing a terrible job of it.<br /><br />Actually, I don't think your scenario is that bad for banks. In the early 1990s, home prices dropped by around 25% in real terms over a period of years, but since inflation was around 4%, nominal home prices were relatively stable, so there wasn't a nominal crisis in home values.<br /><br />I think you have struck closer to the truth where you show how overly concerned they are about inflation.Kevin Erdmannhttp://idiosyncraticwhisk.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-29353221373928176352015-11-27T22:11:27.478-07:002015-11-27T22:11:27.478-07:00Excellent blogging.
And maybe you hit upon somet...Excellent blogging. <br /><br />And maybe you hit upon something.<br /><br />Why are federal central bankers so concerned about cranes, when the problem is under supply?<br /><br />Answer: the banking industry has extended an enormous amount of loans on property at existing property values. New construction would tend to lower property values by lessening scarcity.<br /><br />Good for people and the economy, bad for banks with loans outstanding on property.<br /><br />This actually happened in downtown Los Angeles office markets back in the 1980s. There was an epic building boom, oversupply, and buildings where returned to lenders.<br /><br />Downtown L.A. commercial office rents have been wonderful ever since--- no inflation since the 1980s.<br /><br />Therefore, at least one part of the popular misconception about central bankers is true. Central bankers first think about the banking industry, and then about the larger economyBenjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com