[stansd]

I think you those of you forecasting 60-70% declines are smoking weed. If that happens, we are in an economic downturn similar in magnitude to the great depression (granted a number of you see that in the cards). In addition, long before we get anywhere near those kinds of numbers on a nominal basis, helicopter Ben will inflate us right out of it. Maybe you could see 60% on a real basis, but there is just no way that’s happening nominally.

My prediction is for another 20% from where we are putting the total at around 40%. That puts a 3BR, 2BA, 1,600 sq. ft house here in RB a bit under 400K, which I think is about where it will land.

Stan

[stansd]

I think you those of you forecasting 60-70% declines are smoking weed. If that happens, we are in an economic downturn similar in magnitude to the great depression (granted a number of you see that in the cards). In addition, long before we get anywhere near those kinds of numbers on a nominal basis, helicopter Ben will inflate us right out of it. Maybe you could see 60% on a real basis, but there is just no way that’s happening nominally.

My prediction is for another 20% from where we are putting the total at around 40%. That puts a 3BR, 2BA, 1,600 sq. ft house here in RB a bit under 400K, which I think is about where it will land.

Stan

[stansd]

I think you those of you forecasting 60-70% declines are smoking weed. If that happens, we are in an economic downturn similar in magnitude to the great depression (granted a number of you see that in the cards). In addition, long before we get anywhere near those kinds of numbers on a nominal basis, helicopter Ben will inflate us right out of it. Maybe you could see 60% on a real basis, but there is just no way that’s happening nominally.

My prediction is for another 20% from where we are putting the total at around 40%. That puts a 3BR, 2BA, 1,600 sq. ft house here in RB a bit under 400K, which I think is about where it will land.

Stan

[stansd]

I think you those of you forecasting 60-70% declines are smoking weed. If that happens, we are in an economic downturn similar in magnitude to the great depression (granted a number of you see that in the cards). In addition, long before we get anywhere near those kinds of numbers on a nominal basis, helicopter Ben will inflate us right out of it. Maybe you could see 60% on a real basis, but there is just no way that’s happening nominally.

My prediction is for another 20% from where we are putting the total at around 40%. That puts a 3BR, 2BA, 1,600 sq. ft house here in RB a bit under 400K, which I think is about where it will land.

Stan

[stansd]

I think you those of you forecasting 60-70% declines are smoking weed. If that happens, we are in an economic downturn similar in magnitude to the great depression (granted a number of you see that in the cards). In addition, long before we get anywhere near those kinds of numbers on a nominal basis, helicopter Ben will inflate us right out of it. Maybe you could see 60% on a real basis, but there is just no way that’s happening nominally.

My prediction is for another 20% from where we are putting the total at around 40%. That puts a 3BR, 2BA, 1,600 sq. ft house here in RB a bit under 400K, which I think is about where it will land.

Stan

[stansd]

I’ll go on record saying this is the first good bailout idea I’ve seen. It will lubricate the market by allowing the banks to tap into some of the potential value they are giving up by writing down a loan. Why should a home buyer who got in over his or her head get a payment break now because they can’t afford it and have the potential to reap a large gain down the road.

This increases the odds of a workout and also prevents a maverick borrower from excercising a put option from the bank while reaping all the upside.

I think it’s a great idea-good for all. Too many on this board are out for pain in the market and pain for individuals with impunity. If there is a reasonable economic solution for all, it should be pursued.

Where I do part company, however, is the part where the government buys the loan. I think the negative equity certificate is a nice idea to help the banks work things out., but that the government should avoid a bailout of the loan itself-nanny state versus market innovation.

Stan

[stansd]

I’ll go on record saying this is the first good bailout idea I’ve seen. It will lubricate the market by allowing the banks to tap into some of the potential value they are giving up by writing down a loan. Why should a home buyer who got in over his or her head get a payment break now because they can’t afford it and have the potential to reap a large gain down the road.

This increases the odds of a workout and also prevents a maverick borrower from excercising a put option from the bank while reaping all the upside.

I think it’s a great idea-good for all. Too many on this board are out for pain in the market and pain for individuals with impunity. If there is a reasonable economic solution for all, it should be pursued.

Where I do part company, however, is the part where the government buys the loan. I think the negative equity certificate is a nice idea to help the banks work things out., but that the government should avoid a bailout of the loan itself-nanny state versus market innovation.

Stan

[stansd]

I’ll go on record saying this is the first good bailout idea I’ve seen. It will lubricate the market by allowing the banks to tap into some of the potential value they are giving up by writing down a loan. Why should a home buyer who got in over his or her head get a payment break now because they can’t afford it and have the potential to reap a large gain down the road.

This increases the odds of a workout and also prevents a maverick borrower from excercising a put option from the bank while reaping all the upside.

I think it’s a great idea-good for all. Too many on this board are out for pain in the market and pain for individuals with impunity. If there is a reasonable economic solution for all, it should be pursued.

Where I do part company, however, is the part where the government buys the loan. I think the negative equity certificate is a nice idea to help the banks work things out., but that the government should avoid a bailout of the loan itself-nanny state versus market innovation.

Stan

[stansd]

I’ll go on record saying this is the first good bailout idea I’ve seen. It will lubricate the market by allowing the banks to tap into some of the potential value they are giving up by writing down a loan. Why should a home buyer who got in over his or her head get a payment break now because they can’t afford it and have the potential to reap a large gain down the road.

This increases the odds of a workout and also prevents a maverick borrower from excercising a put option from the bank while reaping all the upside.

I think it’s a great idea-good for all. Too many on this board are out for pain in the market and pain for individuals with impunity. If there is a reasonable economic solution for all, it should be pursued.

Where I do part company, however, is the part where the government buys the loan. I think the negative equity certificate is a nice idea to help the banks work things out., but that the government should avoid a bailout of the loan itself-nanny state versus market innovation.

Stan

[stansd]

I’ll go on record saying this is the first good bailout idea I’ve seen. It will lubricate the market by allowing the banks to tap into some of the potential value they are giving up by writing down a loan. Why should a home buyer who got in over his or her head get a payment break now because they can’t afford it and have the potential to reap a large gain down the road.

This increases the odds of a workout and also prevents a maverick borrower from excercising a put option from the bank while reaping all the upside.

I think it’s a great idea-good for all. Too many on this board are out for pain in the market and pain for individuals with impunity. If there is a reasonable economic solution for all, it should be pursued.

Where I do part company, however, is the part where the government buys the loan. I think the negative equity certificate is a nice idea to help the banks work things out., but that the government should avoid a bailout of the loan itself-nanny state versus market innovation.

Stan

[stansd]

Hi Rich,

I’ll take a crack conceptually-apologize for this being a bit of a stream of consciousness.

If we assume some sort of rational expectations, a house is like a dividend paying stock (the dividends being the right to live in the house, which has some value). The value of the house, then, would be equal to the present value of cash flows, which I’d say are equal to expected rents over the time horizon (owners equivalent, or something like that), plus the value of the house discounted to the present at the current interest rate over the horizon (10 yr t-bill or something).

On that side of the equation (ignoriing financing), then, lower interest rates should increase the present value of the house, but this effect would be muted by the following: lower interest rates would drive lower future rents (assuming those are based on an expected return from the owner), which would also be based on a spread over inflation.

I plugged this into a very simple model that assumed inflation and rent increases of 3%/year, a T-Bill Rate of 6%, and made the assumption that the spread over inflation on the T-Bill is constant at 3%.

Under this scenario, the rising value of the house from a lower interest rate is almost exactly offset by the fact that it slows down the rate of growth in rents, and therefore, the house wealth gained is also a benefit lost in the sense that you were saving less on the rent you would have paid.

That would be a simple, yet quantitative support for your argument, Rich (the result actually surprised me a bit).

You’d still have the financing side of the equation, but you don’t value stocks based on the method of financing, you value them purely on the cash flows of the stock. I’d argue you should do the same here-it’s the cash flows that you are buying that drive price, not the method of financing. The rate reductions are reflected already in the present values calculation on the house.

There are obviously other considerations: The option to refinance, the potential for spreads over treasuries to change, psychological changes in buyer preferences for owning vs. renting, the fact that emotion can enter the market and that not all participants are acting rationally, etc. The recent bubble bears this out since the above would indicate that the abnormally low rates wouldn’t be a boon for prices-I’d argue that was psychology, not economics driven and that the economics can only explain the long-term gravitational pull toward a rational value

That’s a stab:

Stan

[stansd]

Hi Rich,

I’ll take a crack conceptually-apologize for this being a bit of a stream of consciousness.

If we assume some sort of rational expectations, a house is like a dividend paying stock (the dividends being the right to live in the house, which has some value). The value of the house, then, would be equal to the present value of cash flows, which I’d say are equal to expected rents over the time horizon (owners equivalent, or something like that), plus the value of the house discounted to the present at the current interest rate over the horizon (10 yr t-bill or something).

On that side of the equation (ignoriing financing), then, lower interest rates should increase the present value of the house, but this effect would be muted by the following: lower interest rates would drive lower future rents (assuming those are based on an expected return from the owner), which would also be based on a spread over inflation.

I plugged this into a very simple model that assumed inflation and rent increases of 3%/year, a T-Bill Rate of 6%, and made the assumption that the spread over inflation on the T-Bill is constant at 3%.

Under this scenario, the rising value of the house from a lower interest rate is almost exactly offset by the fact that it slows down the rate of growth in rents, and therefore, the house wealth gained is also a benefit lost in the sense that you were saving less on the rent you would have paid.

That would be a simple, yet quantitative support for your argument, Rich (the result actually surprised me a bit).

You’d still have the financing side of the equation, but you don’t value stocks based on the method of financing, you value them purely on the cash flows of the stock. I’d argue you should do the same here-it’s the cash flows that you are buying that drive price, not the method of financing. The rate reductions are reflected already in the present values calculation on the house.

There are obviously other considerations: The option to refinance, the potential for spreads over treasuries to change, psychological changes in buyer preferences for owning vs. renting, the fact that emotion can enter the market and that not all participants are acting rationally, etc. The recent bubble bears this out since the above would indicate that the abnormally low rates wouldn’t be a boon for prices-I’d argue that was psychology, not economics driven and that the economics can only explain the long-term gravitational pull toward a rational value

That’s a stab:

Stan

[stansd]

Hi Rich,

I’ll take a crack conceptually-apologize for this being a bit of a stream of consciousness.

If we assume some sort of rational expectations, a house is like a dividend paying stock (the dividends being the right to live in the house, which has some value). The value of the house, then, would be equal to the present value of cash flows, which I’d say are equal to expected rents over the time horizon (owners equivalent, or something like that), plus the value of the house discounted to the present at the current interest rate over the horizon (10 yr t-bill or something).

On that side of the equation (ignoriing financing), then, lower interest rates should increase the present value of the house, but this effect would be muted by the following: lower interest rates would drive lower future rents (assuming those are based on an expected return from the owner), which would also be based on a spread over inflation.

I plugged this into a very simple model that assumed inflation and rent increases of 3%/year, a T-Bill Rate of 6%, and made the assumption that the spread over inflation on the T-Bill is constant at 3%.

Under this scenario, the rising value of the house from a lower interest rate is almost exactly offset by the fact that it slows down the rate of growth in rents, and therefore, the house wealth gained is also a benefit lost in the sense that you were saving less on the rent you would have paid.

That would be a simple, yet quantitative support for your argument, Rich (the result actually surprised me a bit).

You’d still have the financing side of the equation, but you don’t value stocks based on the method of financing, you value them purely on the cash flows of the stock. I’d argue you should do the same here-it’s the cash flows that you are buying that drive price, not the method of financing. The rate reductions are reflected already in the present values calculation on the house.

There are obviously other considerations: The option to refinance, the potential for spreads over treasuries to change, psychological changes in buyer preferences for owning vs. renting, the fact that emotion can enter the market and that not all participants are acting rationally, etc. The recent bubble bears this out since the above would indicate that the abnormally low rates wouldn’t be a boon for prices-I’d argue that was psychology, not economics driven and that the economics can only explain the long-term gravitational pull toward a rational value

That’s a stab:

Stan

[stansd]

Hi Rich,

I’ll take a crack conceptually-apologize for this being a bit of a stream of consciousness.

If we assume some sort of rational expectations, a house is like a dividend paying stock (the dividends being the right to live in the house, which has some value). The value of the house, then, would be equal to the present value of cash flows, which I’d say are equal to expected rents over the time horizon (owners equivalent, or something like that), plus the value of the house discounted to the present at the current interest rate over the horizon (10 yr t-bill or something).

On that side of the equation (ignoriing financing), then, lower interest rates should increase the present value of the house, but this effect would be muted by the following: lower interest rates would drive lower future rents (assuming those are based on an expected return from the owner), which would also be based on a spread over inflation.

I plugged this into a very simple model that assumed inflation and rent increases of 3%/year, a T-Bill Rate of 6%, and made the assumption that the spread over inflation on the T-Bill is constant at 3%.

Under this scenario, the rising value of the house from a lower interest rate is almost exactly offset by the fact that it slows down the rate of growth in rents, and therefore, the house wealth gained is also a benefit lost in the sense that you were saving less on the rent you would have paid.

That would be a simple, yet quantitative support for your argument, Rich (the result actually surprised me a bit).

You’d still have the financing side of the equation, but you don’t value stocks based on the method of financing, you value them purely on the cash flows of the stock. I’d argue you should do the same here-it’s the cash flows that you are buying that drive price, not the method of financing. The rate reductions are reflected already in the present values calculation on the house.

There are obviously other considerations: The option to refinance, the potential for spreads over treasuries to change, psychological changes in buyer preferences for owning vs. renting, the fact that emotion can enter the market and that not all participants are acting rationally, etc. The recent bubble bears this out since the above would indicate that the abnormally low rates wouldn’t be a boon for prices-I’d argue that was psychology, not economics driven and that the economics can only explain the long-term gravitational pull toward a rational value

That’s a stab:

Stan

[stansd]

Hi Rich,

I’ll take a crack conceptually-apologize for this being a bit of a stream of consciousness.

If we assume some sort of rational expectations, a house is like a dividend paying stock (the dividends being the right to live in the house, which has some value). The value of the house, then, would be equal to the present value of cash flows, which I’d say are equal to expected rents over the time horizon (owners equivalent, or something like that), plus the value of the house discounted to the present at the current interest rate over the horizon (10 yr t-bill or something).

On that side of the equation (ignoriing financing), then, lower interest rates should increase the present value of the house, but this effect would be muted by the following: lower interest rates would drive lower future rents (assuming those are based on an expected return from the owner), which would also be based on a spread over inflation.

I plugged this into a very simple model that assumed inflation and rent increases of 3%/year, a T-Bill Rate of 6%, and made the assumption that the spread over inflation on the T-Bill is constant at 3%.

Under this scenario, the rising value of the house from a lower interest rate is almost exactly offset by the fact that it slows down the rate of growth in rents, and therefore, the house wealth gained is also a benefit lost in the sense that you were saving less on the rent you would have paid.

That would be a simple, yet quantitative support for your argument, Rich (the result actually surprised me a bit).

You’d still have the financing side of the equation, but you don’t value stocks based on the method of financing, you value them purely on the cash flows of the stock. I’d argue you should do the same here-it’s the cash flows that you are buying that drive price, not the method of financing. The rate reductions are reflected already in the present values calculation on the house.

There are obviously other considerations: The option to refinance, the potential for spreads over treasuries to change, psychological changes in buyer preferences for owning vs. renting, the fact that emotion can enter the market and that not all participants are acting rationally, etc. The recent bubble bears this out since the above would indicate that the abnormally low rates wouldn’t be a boon for prices-I’d argue that was psychology, not economics driven and that the economics can only explain the long-term gravitational pull toward a rational value

That’s a stab:

Stan

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