[quote=Rt.66]If I could find a common thread amongst buyers I would guess that they believe this is just another recession and NOT GD2 or a Japan style deflationary lost decades.
So let’s verify it with 2 more Questions:
1) Do you believe the “Green Shoots” PR and think we are at the end of a recession and NOT in the eye of a depression storm?
2) If so, then why do you believe this is just another run-of-the-mill recession and RE cycle?
Great responses, keep ’em coming.[/quote]
My opinion that this is indeed “green shoots” PR but I don’t think we are facing a deflationary period ahead. I think we are likely facing a mild inflationary period similar to the 1970s but less dramatically.
This recession is caused by debt and history tells us that such recession is generally slow at recovering rather than a recession caused by over-production. But the recessions in some part of the world this time are indeed caused by over-production not by inadequate saving: China is the most prominent one. Therefore, I firmly believe that EM will recover earlier than the developed country and when they do, it will drive up price inflation around the world. To make things worse, when the EM countries are standing firmer on their feet with domestic consumption growth, they have fewer reasons to rely on exports and there seems to be fewer reasons to hold down their exchange rates, which is the ultimate cause of their massive amount of the US treasury debt. So when the foreigners have less appetite for US debts, so up go our interest rate. This will hurt the recovering economy, whether it will cause an ultimate dollar collapse is hard to say but a rising interest will hurt businesses in US at all levels.
On the other hand, I think the next recession cycle (which will come pretty soon, probably as early as middle of 2010) will not be driven by a declining RE market. People may still be forced into foreclosure because of layoff, but those who can hold onto their properties in the coming economy storms will turn out fine. Don’t take excessive risks in the RE market but don’t avoid risks when the buying has already become a better financial decision over renting.
