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Physicist, Startup Founder, Blogger, Dad

Thursday, March 24, 2011

Almost over? part 2

Are further price declines in the cards? If you think there's some inflation around the corner (say in the next few years), now might be a good time to lever up and buy some real estate.

Here's an interesting figure from a recent paper by Case, Quigley and Shiller. The paper is primarily about wealth effects, but it has some nice panel data. They find that the wealth effect is stronger for housing than for equity assets.



Here is a video from the Financial Times discussing the paper and recent housing data.

More discussion and figures like the one below in this earlier post.


11 comments:

Taufaahau_Tupou_IV said...

If you think there's some inflation around the corner (say in the next few years), now might be a good time to lever up and buy some real estate.

Very simplistic. Wages will stagnate and real wages will decline in the US. Mortgage rates will increase and lenders will have much higher standards. But, income inequality will increase. Synecdochally speaking house prices will increase in Midtown and Malibu and decline or stay constant everywhere else. That's the US. In countries with working governments, like Taiwan and Hong Kong, they will go up everywhere, although some areas may now be in a bubble.

steve hsu said...

The Case-Shiller data (see second figure in post) seems to show that housing is a good inflation hedge -- holds value in real dollars. The cost of the leverage will of course fall with inflation.

LondonYoung said...

TT4 - what is happening with income inequality in Taiwan?

Taufaahau_Tupou_IV said...

You would know better than I. You are a master of the universe after all. At least according to Steve.

Income inequality should increase everywhere, but the US has problems Taiwan and HK don't have. "The sun'll come out tomorrow. Bet your bottom dollar that tomorrow, come what may...." But the sun will shine more brightly everywhere else.

Taufaahau_Tupou_IV said...

Right. But unless you're buying in some tony enclave you might as well put down 2% and buy the yen and sell the dollar or the rand or whatever. Short rates (margin rates) won't be allowed to reach the rate of present 30 year mortgage rates until unemployment is half what it is now. What will Bernanke do with stagflation? What's he doing with it now?

LondonYoung said...

Why do you think the problems that the US has, that Taiwan doesn't, are worse than the problems Taiwan has, that the US doesn't?

BTW, I struggle to be master of my own domain, let alone the universe ....

Taufaahau_Tupou_IV said...

As far as I know the only advantage the US has over Taiwan or any other developed country is its natural resources. Canada and Australia the same but not as much, and Canada's and Australia's "Mexicans" are Chinese.

The US vs Taiwan:

Almost all of Taiwan's people are Chinese and most of them from Fujian.
They aren't fat.
They don't have tattoos do they?
Their K-12 public education system is distinguishable from a prison system.
In Taiwan only the dumb kids go to private universities.
A larger fraction of those with qualifications have technical qualifications.
Taiwan spends only 1/3 of what the US spends on health care but live longer healthier lives.
...

LondonYoung said...

Okey doke, well answered. But do you not think the selective emigration to the U.S. has left it with any lasting advantage?

Taufaahau_Tupou_IV said...

Does the US gets more of these selective immigrants than Western Europe, Canada, or the Antipodes? My guess is the US gets a lot more of them in computer related fields, and that London and NYC get all the quants.

Americans who work for US multinationals like CAT, GS, and KO have a very bright future.

If I lived in Norway and hired roofers they'd all be Norwegian and it would cost a lot more. In the US every last one will be Mexican and blacks in my city's 'hood whose ancestors have been in the US as long as mine will stay unemployed. Some say that open borders don't affect wages. I think that's jive.

Captain_Cook said...

If I lived in Norway and hired roofers they'd all be Norwegian and it would cost a lot more. In the US every last one will be Mexican and blacks in my city's 'hood whose ancestors have been in the US as long as mine will stay unemployed. Some say that open borders don't affect wages. I think that's jive.

Gross ignorance and truthiness TT-4, but what can be expected from someone who comments on blogs.

LondonYoung said...

Well, I don't think TT4 is pushing it to say that open borders affect wages.
But I think that we're agreeing that the US, Western Europe, Canada and the Antipodes benefit from immigration while Taiwan does not?

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