Posted on 07/28/2005 3:59:07 PM PDT by Sonny M
In one of those weird twists,one of the things that can kill a bubble in a neighborhood, isn't the cost of materials, or even the mortgage rates.
It could be an increase in supply.
Say I have a nice neighborhood, good property values, etc. Now say a developer sees my neighborhood and starts buying, hence a bubble has started, because he is only buying with the intention of building condos.
As the supply gets increased, and more and more folks can afford to live in my neighborhood, my house is no longer as desirable as it once was before, since it is much less rare or needed now, mortgages can also shrink here, as mortgages get lower in proportion to price with a large supply, now the bubble can burst, since with high supply, the neighborhood overcrowded, and lower prices that have resulted, that would, in theory leave the bank with more money to loan out.
You could argue that my bust helps that guy in Idaho get more money from the bank to get supplies to build his house.....though more likely, the bank would simply feel more free to loan it out somewhere else.
Sidenote: NYC prohibits "redlining" and it is not accepted practise, but in side ways, can still occur though not directly.
Ironically, getting rid of "redlining" probably caused more gentrification for NYC then any single program before it ever could have and has on its own, created an enviornment for a boom.
Economics is the study of large complex systems. And yes, they often expand or extrapolate to insane levels, which makes them all the more complex. For instance, what will the effect of the new bankruptcy laws be on the Indian economy, where call centers are a large industry? Some economist in India is probably studying that question right now.
The fact of the matter is, there is no hiding from economic forces.
Fort Pierce is next. I just moved my Mortgage company there. I am on the beach. Ft. Pierce has tried to stop the growth but after what has happened in Pt St lucie and Vero they are opening up. It will be the next hot spot.
Finally, some sanity.
All of the housing bubble talk originates from the same pool of pessimistic lefties, same as how a homeless problem pops up during Reagan, is suddenly gone during Clinton and back with W. Economy's good under an evil Republican? Watch out for the fall!
There will be slowdowns in areas, but the cause is local economics and demographics. Check out Michigan/Detroit area. To regulate is the liberal answer to everything. The economy is just too complex for a single fix from some liberal know it all writing in the NYTimes, there's always an opposite reaction to their meddling. However, the housing prices like everything else in life are not a sure thing, but there is not much else that has as high a return for relatively little risk. And you can live in it!
Krugman and his pessimist ilk are trying to derail everything for only one reason, and if they somehow get their power back watch how rosy the economy and housing will suddenly become.
mark
That is only the case if interest rates have nothing to do with housing prices.
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