[quote=barnaby33]
I don’t believe we are in a bubble now either. I believe horrible monetary policy, deliberate collusion on the part of the banks and govt to force down inventory and a rapidly evolving pear shaped economy explain what’s happening without anything irrational. As noted investors have to choose between overpriced stocks, overpriced bonds, or slightly overpriced RE.
On that note though, does anyone have a strong opinion about when interest rates will rise, because that is the driver of all of this. Or rather when will the Fed stop fighting deflation? Sorry had to say it!
Josh[/quote]
Primarily addressing the bolded part…whether or not there has been horrible monetary policy remains to be seen. It has clearly been a boost to the economy as a whole, whether it’s been cost effective is an unknown. If we survive, then it worked.
On the supposed “collusion on the part of the banks and govt to force down inventory”, I think you give both lenders and policy makers too much credit. Government policy has been both inept and misguided, and mostly a waste of money, but other than minor timing differences, it hasn’t effected the inventory. Foreclosure moratoriums were temporary, and never would have happened if the lenders had their shit together in the first place.
Lenders “may have” intentionally slowed the release of inventory, but I think it’s more likely that again, it’s incompetence rather than strategy. Lenders have never done a good at managing REO portfolios. It has become pretty much accepted fact that REO’s sell for less than other properties. If there is any logic to that it escapes me. The only good explanation is that lenders are stupid.
More importantly, whether through malevolence or ignorance doesn’t really matter, it worked.
The price freefall ended and the current price rises notwithstanding, we’ve had a pretty stable residential real estate market for a couple years. If it had unfolded differently, and there was no government intervention to delay foreclosures, and no delay in lenders getting loans foreclosed and property to the market, prices would have fall faster and deeper than they did. Losses for both lenders, homeowners and probably the government would have been significantly greater.
But I’ve yet to see any logical argument that, had that happened, we’d be in a better place today. I suspect, just the opposite, we’d be in a much worse situation today. I think we’d looking at still very depressed prices, and more importantly, significantly less new construction.
Sometimes when we talk about real estate prices and the economy, they’re discussed as if the two go hand in hand. They don’t. With all due respect to all the agents here, resales of homes make only a miniscule contribution to GDP. As a whole, it means shit to the economy. Home construction, on the other hand, is a signficant GDP driver. And if prices were still 20% lower than they are today, builders wouldn’t be building. Unemployment would be higher than it is. And probably half of the GDP growth over the last year wouldn’t exist.
