The booming housing markets that we have just seen were and are products of past negative real interest rates. Interest rates are rising and for very good reasons. Rising real interest rates increase the cost of buying a house. The resulting price changes in housing must therefore be, in aggregate, down.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
I can't imagine any way that you could be wrong on this but you could have mentioned that along with negative real interest rates that loan requirements have been dropped drastically, I see posts to the effect that the norm is to buy a house costing five years gross income, this would have been considered insanity forty years ago. Also there is no way that housing prices can continue indefinitely to rise faster than incomes.
Not that I agree with your conclusions or the way you chose facts to support them. What I'm saying is that you're making me think and my thinking feeds my family. Please let me share the other facts I'm seeing that point away from your impending disaster scenario to my continuing success scenario.
My take is that Bernanke fears inflation like we fear high voltage electricity. We respect it, control it, and it makes life better. OK, the idiot press will twist his words to make it look like Ben is sweating bullets about "huge inflation pressures" and "stacking sand bags at full speed", but he doesn't talk that way. If you chuck the idiot America-bashing news sources and go directly to the Fed's press releases, you find that Bernanke calmly says things (here) like "The outlook for inflation is reasonably favorable but carries some risks."
He's not doom and gloom. He does not show "dismay" when he talks about oil. He says "Increases in energy prices have pushed up overall consumer price inflation over the past year or so. However, inflation in core price indexes, which in the past has been a better indicator of longer-term inflation trends, has remained roughly stable over the past year." Translation: "calm down and stop crying about oil prices".
That lets us get back to housing; once again by only looking at what the the idiot America-bashing press gives us we get scared. By looking at all of reality we can get back to work and feed our families. OK, the scary part is that interest rates are going up. We control our emotional fears with sanity by remembering that rates are still very low and they're supposed to go up. See for yourself; both mortgage rates and the prime rate are still at historic lows, construction spending is still climbing, and homes are still affordable.
It may be a lot of work to have to set a side a scary, dramatic, belief system that the TV and all your freinds back you up on, and trade it in one that's well, boring. It's worth it. The two big reasons are that the boring truth can feed your family, and the other is that the boring truth is not a lie.
JMO, but I think that recent history effectively counters your belief that there is a correlation between interest rates and property prices. The last great property market was from 1976-1979. From January 1976 to January 1980, the fed funds rate rose from 4.87 to 13.82 percent. During that time real estate values skyrocketed. In his 1981 book Wealth and Poverty, George Guilder notes that by 1979, the value of individually owned dwellings had reached $1.3 trillion dollars, twice the worth of individually owned corporate stock. He also noted that half of the newly minted multimillionaires in 1978 achieved their fortunes in real estate.
Conversely, each of the three property bear markets during the last 30 years or so (1974-75, 1980-82, 1990-92) occurred while rates were falling. Real estate is the most frothy when the dollar is weak. To state that housing prices must go down because interest rates are rising ignores recent history.
