[quote=kewp]Underdose, I think that in order to have housing actually rise in price, we will need to have wages increase so that the debt can be sustained.
In the long run, fundamentals *always* win out.
And median income in the fundamental. High unemployment plus falling wages is indeed the swan song for the SoCal RE market.
There is no way to re-inflate the housing bubble, short of imposing price controls and actually paying people to buy homes. I can’t imagine that ever happening.[/quote]
Housing rose in price in the first half of this decade as real wages declined. Greenspan’s monetary policy made home prices rise, not people’s ability to afford homes with their wages. Yes, fundamentals always win, and that is why housing is correcting. I believe they need to correct further in real terms. I agree, there is no way to re-inflate the housing bubble, at least not in real terms. But there is a reasonable chance that if Helicopter Ben prints aggressively enough, inflation will push EVERYTHING up in nominal terms. As EconProf pointed out, during the 1970’s inflation, all inflation hedges went up in nominal terms. That is why I make the distinction between nominal price gains and real ones. The only way housing will go up in nominal terms is if milk goes to $100 a gallon.
The real question is: who or what will win? Are the deflationary forces of asset destruction and declining aggregate demand so strong that no amount of printing on the Fed’s part can counteract it? Or are the inflationary forces of the Fed’s reckless monetary policy, the Treasury’s reckless fiscal policy, our ballooning current accounts balance from the trade deficit, and the likely abandonment of the dollar as reserve currency going to cause severe stagflation instead of a deflationary recession? My money (literally!) is on the latter. The 70’s prove that the Fed can overpower recessionary deflation and cause something worse. Oddly, I hope I’m wrong. I’d rather my investments go sour than see this country collapse in hyperinflation. We’ll see what Hank and Ben do next….
