tag:blogger.com,1999:blog-1110014885778996459.post5767120496893258051..comments2024-03-28T01:12:29.954-07:00Comments on Idiosyncratic Whisk: Housing Tax Policy, A Series: Part 59 - The Effect of the Housing "Bubble" on Nominal IncomesKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-1110014885778996459.post-61764466917504951212015-09-07T23:36:45.221-07:002015-09-07T23:36:45.221-07:00Oops, 3rd paragraph should say "young mortgag...Oops, 3rd paragraph should say "young mortgages with high loan-to-value..."Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-58736218849740314572015-09-07T20:45:37.852-07:002015-09-07T20:45:37.852-07:00I don't think I have, directly. I think since...I don't think I have, directly. I think since 2006, there has been a disequilibrium. Before that housing was generally in equilibrium, so it might have shared some of the decline in expected income growth on the downside with equities, but it would gain from the associated fall in real long term interest rates that would tend to come along with that, so future rents might be lower, but their present value would be the same.<br /><br />I haven't looked into it as much as I'd like, but I suspect the REITs don't share this behavior because they tend to use leverage to boost average returns, but that leverage gives them a net short position on bonds, which counteracts the natural bond-like behavior of the equity position in the house.<br /><br />Houses are still out of equilibrium, so I am not confident about how they would react to a new bear market, although I assume the relatively low level of price/rent and the very low level of young mortgages with low loan-to-value levels will buffer any downside influence.<br /><br />I originally thought that home ownership had brought excess returns to the marginal owner because of limits to credit access, and that the reduction of those limits in the 2000s (because of low nominal interest rates and modern financial instruments) allowed marginal households to bid away those excess returns, pushing up the prices of houses. But, I am coming around to the idea that there wasn't much excess return for housing before, and that rising rents (and expected rents) explain just about all of the unusual price increases in the 2000s, and only since the collapse of federal monetary and fiscal support for traditional housing finance after 2005 have we entered a context where there are excess returns to home ownership because of a lack of access.<br /><br />In that context, if you have access to capital and can deploy it in housing, then you'll eventually have risk adjusted excess gains. Even those REITs should do well if they aren't trading well above book value, because the returns on their assets should be higher than the risk-adjusted cost of their debt.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-57506363787373750902015-09-06T05:43:51.997-07:002015-09-06T05:43:51.997-07:00TravisV here.
The latest Barron's has a very ...TravisV here.<br /><br />The latest Barron's has a very interesting article: "As Stocks Fall, Real Estate May Be the Best Defense" http://www.barrons.com/articles/as-stocks-fall-real-estate-may-be-the-best-defense-1441437287<br /><br />A sample: "Overall there just isn’t much correlation of home prices with the stock market. So [what happened in 2007-2009] looks like just chance.”<br /><br />Kevin, have you written any posts that pertain to this topic? Thanks.Anonymousnoreply@blogger.com