Zillow Advice: Rent vs. Buy - "Learning to Love Falling House Prices"

Here is the linkPK: The thing ...

Thu, 02 Jul 2009 17:34:00 GMT

Here is the link

PK: The thing about long-term interest rates is that they are a weighted average of future expected short-term interest rates. Movements in long-term rates are mostly about what people think the short rates are going to be.

Actually Krugmans' analysis ...

Thu, 02 Jul 2009 17:14:00 GMT

Actually Krugmans' analysis is about short-term fluctuations of long-term rates :-) What you guys are discussing is about long-term trend of long-term rates so my post below is not related to the subject.

In another post (I'll post the link sooner) Krugman said long term rates are "Expected average of future short term rates" so the FED has control over it not directly but indirectly.

Here is what Paul Krugman ...

Thu, 02 Jul 2009 17:08:00 GMT

Here is what Paul Krugman thinks about long term rates - Its the Economy stupid

I did post historical series ...

Wed, 01 Jul 2009 18:43:00 GMT

I did post historical series showing that mortgage rates and median home prices don't correlate well (on the first derivative). They obviously are related, but that relationship is not direct or simple.

In the current environment, it is possible that long rates rise despite intervention of the Fed due to real-rate pressures, that caused by the large impact foreign reserve holders of USDs have on real rates in the US. It is possible to envision a stagflationary situation whereby *median* incomes fall, mortgage rates rise, yet home prices flatten or even rise in some well-corrected markets. This wouldn't be as bizarre as it sounds because the missing piece of the puzzle is that stagflation only causes *median* incomes to fall, while what is happening underneath falls under "wage [in]efficiency" theory -- people with [certain] jobs continue to see rising wages while people who lose those jobs are forced to reenter the workforce at markedly lower wages, even for the same equivalent jobs.

Similarly, if we continue to see widespread discretionary-goods price deflation, then rising mortgage rates could accompany flat or rising home prices (for well corrected markets), due to the shifting of spending/v//savings.

Or in short, rates and prices aren't well correlated when you look at the two series historically.

Glitch? I wonder. Manipulation ...

Wed, 01 Jul 2009 12:17:00 GMT

Glitch? I wonder. Manipulation I'd believe. Kind of like marking an unapporved short sale under contract just because the seller agreed. Sort of skews the numbers in a big way when you open the Sunday paper and read about all those homes now under contract.

azrob, the "WIN" buttons ...

Wed, 01 Jul 2009 06:50:00 GMT

azrob, the "WIN" buttons were a Gerry Ford thing.

If you turned them upside down they read "NIM" -- "No Immediate Mirackes"

DQdata gets their data from ...

Wed, 01 Jul 2009 06:13:00 GMT

DQdata gets their data from county records, which includes FC.

Does DQdata have a filter for transactions which are not arms length? There are a good deal of transactions which recrod in county records at "x" dollar amount lower then market because they are sales between family, LLC, etc. Is there a filter for that in the data presented by DQ?

Nice find Dacolan. ...

Wed, 01 Jul 2009 06:10:00 GMT

Nice find Dacolan. Good to know I'm not just making things up or reinventing my own memories.

If higher rates were caused by an increasing economy leading to inflation... higher rates wouldn't cause home prices to drop. BUT higher rates in an economy with stagnant wages and job losses, and you can bet it will contribute to prices dropping. -AZRob

very good point.

myerstream, it helps to actually ...

Wed, 01 Jul 2009 05:45:00 GMT

myerstream, it helps to actually KNOW what you are talking about... not just spout it!

1. The FED simply can't decide to lower long term rates. There is this thing called a market, and ours requires the Chinese and Japanese to buy tons of our bonds. The far bigger risk is that current FED meddling in long term rates drops the US debt credit rating and/or sparks a currency crisis. google iceland, read and learn. rates could jump to double digits overnight.

2. "loosen up credit" implies that credit is not available to those who want it. What we have today, is a fact that a. nobody wants credit! people are increasing there savings rates, and businesses are reducing leverage. You can't push on a string, when nobody wants to borrow, all the credit in the world doesn't matter.

3. Actually, no market for anything has ever been propped up, or held down by government action over the long term. Look it up, seriously! wage and price controls under carter, (got any of those WIN buttons handy? whip inflation now) price controls in third world nations, all eventually lead to worse market conditions, rationing, etc.

econ lesson is over for tonight;

Eventually the Federal Reserve ...

Wed, 01 Jul 2009 03:07:00 GMT

Eventually the Federal Reserve and the powers that be will come to realize that the only way to turn the falling home market around is to lower long term mortgage rates to around 2 % for 30 year fixed rates. They will also have to loosen up on credit. This may take years, however, this must happen before we will see things turn around.