--- In FairfieldLife@yahoogroups.com, off_world_beings <[EMAIL PROTECTED]>
> --- In FairfieldLife@yahoogroups.com, akasha_108 <[EMAIL PROTECTED]> 
> wrote:
> >
> > Per recent housing price discussion, a new study highlights three 
> key
> > factors that distinguish the current pruce surge and the 
> traditional
> > housing price cycle -- indicating a potential bubble.
> > 
> > ---
> > Study cites recent trends that signal housing bubble
> > 
> > Washington, DC - Recent trends in the housing market suggest a
> > dangerous housing bubble, rather than a run-up caused by 
> fundamental
> > factors such as higher incomes and population growth, according to 
> a
> > new study by the Center for Economic and Policy Research (CEPR).
> > 
> > The report, "Will a Bursting Bubble Trouble Bernanke? The Evidence 
> for
> > a Housing Bubble," cites three trends in the housing market that
> > suggest an unsustainable increase in house prices: 1) A sharp
> > divergence between house sale prices and rents; >>
> No, in the past rents were too close to the cost of buying a house, 
> now it is  more expensive to buy a house than to rent, and this is a 
> normal market correction. Normal.

Huh? It is normal, the market is in equillibrium, when rents =
mortgage payments (after tax, after homeowner costs). The fact that
rents are at or below 50% of mortgage payments in many areas indicates
that the housing market is seriously out of what and a correction is
probably to bring prices in line with rents and to bring affordability
from  15% in many areas back to 50% or more.
> 2) An extraordinary
> > jump in the rate of housing construction; >>>
> Only in parts of the country, where there has been an increase in 
> jobs. Normal.

The construction increases have been in areas where housing prices
have risen sharply. Contributing to a potential  emerging over-supply
situation -- that will put downward pressure on prices.
> <<  3) A sharp decline in
> > the savings rate, driven by a housing wealth effect.>>>

This means people have been drawing heavily on home equity loans
supported by increased paper profits in the recent rises equity in
their homes. This means people are spending more, as a % of income,
thus savings rates are declining -- a bad thing for future interest
rates and productivity.

> This means people have less savings than they had when they were 
> renting and were pouring $10 to 20,000 a year down the drain in 
> rent. 

People either rent property or rent money to buy property. We are all

In initial years of a mortgage, only about 15% of mortgage payments go
towards equity -- the rest is interest.

The primary driver of equity build up for buyers is home appreciation
-- which all the fundamentals in the market point to leveling off or
If one can rent the same property for 1500/mo, rather than buy it with
a mortgage of 3000/month, the renter is saving $1500 / month. The
buyer is pouring money down the drain unless home prices apprciate.
But there are strong indications that that train will not be back in
town for 5-15 years.

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