Posted on 10/23/2005 4:51:31 PM PDT by Graybeard58
Many members of the Fourth Estate have trouble connecting rising prison populations with declining crime rates. The New York Times, The Associated Press and others can't get their brains around the notion that locking up more criminals makes society safer.
Sen. E. J. "Jake" Garn, R-Utah, in an op-ed for Knight Ridder/Tribune Information Services, exhibited similar difficulty with another elemental concept: "Although houses have never been more expensive than today, home sales surged to an all-time record this summer, and more than 50 million American families are expected to purchase homes over the next 10 years."
Now, Sen. Garn holds a degree in business and finance. During the Reagan administration, he was chairman of the Senate Committee on Banking, Housing and Urban Affairs and a member of the Senate Appropriations Committee. He also served on Housing and Urban Affairs, Financial Institutions, and International Finance and Monetary Policy subcommittees.
With such credentials, one would think he would have a good grasp of basic economic laws.
"(H)ouses has never been more expensive" because demand has been unable to keep up with supply. If these forces were in balance, housing prices would be stable. If supply exceeded demand, prices would fall. This is Economics 101.
Local governments approved the construction of slightly more than 2 million housing units in 2004; at that rate, 20 million would be built over the next 10 years.
So if more than 50 million families are expected to buy homes in the next decade, are housing prices headed up or down?
Don't ask Sen. Garn. He has trouble with the cause-and-effect relationship between high demand and high prices.
""(H)ouses has never been more expensive" because demand has been unable to keep up with supply. If these forces were in balance, housing prices would be stable. If supply exceeded demand, prices would fall. This is Economics 101."
Econ 101 tends to focus on elastic efficient markets because that's the simplest case. The housing market has a number of complicating factors including everything from migration patterns to texchange rates with China to envorinmental regulations and free trade agreements.
Basic principle: When lecturing others on their ignorance of economic laws, try not to state them backwards.
So if we built 100 million houses the price would still go up due to the trade imbalance?
"So if we built 100 million houses the price would still go up due to the trade imbalance?"
If you could somehow manage to build 100 million houses without effecting any other variable then the prices would certainly go down.
That doesn't change the fact the simple supply and demand relationship does not correctly predict the housing market because other variables also play a role. For example when interest rates are low people think they can afford more house or to pay more for the same house.
But Chinese exchange rates and trade effect interest rates and inflation. Oil prices also effect inflation. There are also psychological factors and substitution issues.
It's pretty darn complex to predict housing prices even one year out. If you could do it reliably you could make a lot of money.
I'm sure this fellow mispoke about low demand causing higher prices.
He meant to say low supply.
Ironically, low demand is a serious problem for our economy.
Wage growth is stagnant at best and population growth is moderating faster than anyone imagined.
At the same time, technology is producing more and more goods at lower costs.
Is this why 30 year t-bonds are yielding so little (less than zero after inflation and taxes.)?
How many of 50 million families intending to purchase a home will be selling another dwelling? And how many of them will inherit a house? Essentially, how many net purchases are expected? Without this clarification it is op-ed writers, not Sen. Garn, who sound ignorant.
I'm just a lowly engineer, myself, but I'd just like to point out: what you are talking about are indirect factors, i.e., things that drive demand or supply. If demand is high - regardless why, e.g. low interest rates - and supply is low - regardless why, e.g. development regulations - I'd bet my right nut that prices will rise. But I'm not an economist, so what do I know...
Yes houses are more expensive than ever and that is a horrible thing and it isn't about just supply and demand. Economics is not a simple game many things effect prices other than just supply and demand. One of the big changes that has occurred is that families now generally have two wage earners and this is not as much an option as it is a requirement for most home buyers. People are also no longer as likely to build their own homes themselves. All these factors play a role.
What I see is true home value (what you actually get) is becoming further and further removed from what people are actually paying. I fear that this combined with unreasonably high property tax rates is going to reach a breaking point not because of lack of supply, though in some markets this is true, but because a majority of Americans are already over extended in so many ways and have been taking out record numbers of home equity loans. I foresee lots of foreclosures in the near future.
I hope I'm wrong but I certainly don't like these low interest rate loans allowing people to purchase homes that they in the near future will not be able to pay property taxes on. I also don't like what I see in property purchasing and selling that resembles stock market day trading which seems to be driving property values artifically high. I think eventually communities will have to consider indexing property taxes to income so as to not force people out of their homes.
The author used the housing market as an example so I went that direction.... in speaking to an engineer I would have gone directly to my core point - correlation does not equal causation. Particularly in a multi-variable field it is hard to tell how two variables are linked just because they change at the same time.
My property taxes have increased just 8% in the 13 years I have lived in my house, while the value of my house has increased at least 4 fold due to improvements and inflation.
I am just waiting for the the tax ax to fall. Some dim wits in county gov are eventually going to see what a tax bonanza is there for the taking.
It seems I've been hearing this Chicken Little story for 30 years now.
("Denny Crane: Gun Control? For Communists. She's a liberal. Can't hunt.")
ROFLMAO BUMP!
Some people stop thinking when it is no longer required, IE: when they get elected.
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