History of the Housing market... (scary)..

[JMS]

Think the housing correction has run it's coarse?

[Henry]

Hard to see any trend there. One housing depression lasted for 35 years. We've been at 110 or more on the index for over 50 years. I don't expect the boom to last. (Does anyone?) But I don't see anything on this chart to indicate how far it will fall. There's no discernable pattern there.

[jpillian]

I'd say the trend is: despite the upswings and downswings, the market's equilibrium seems to be around 100-110k.

If that's the case, we're eventually due for a correction of approximately 50%. I'd say that's fairly substantial.

(And yes, I do think the vast majority of folks expect the valuation of their homes to continue to rise).

[Larry]

Just curious, but I'd be interested in seeing that graphed along with out foreign-trade deficit.

I've had conviction for some time that it's impossible for a country to run a balance of trade deficit, sustained for any length of time. My reasoning is that when the US imports a widget, we export a dollar. WidgetCo then has a dollar. That dollar, however, is completely without any value, anywhere except the US. WidgetCo must then either buy something from the US (sending the dollar back to the US), or sell the dollar to somebody else who wants to buy something from the US. I assert that the dollar has to come back. (Because this is the only place where it's worth anything.)

Therefore, I'd assert that if we actually have been running a trade deficit, then that money must be being spent on something that doesn't count on the balance of trade report. I wouldn't be surprised if a lot of those "foreign dollars" are being spent on Real Estate. (Resulting in a vast increase in prices.)

[Predicto]

I also wonder if that chart takes into account the fact that homes in the past decade or two tended to be much, much larger than homes in the past. People may be willing to spend a larger percentage of their income on a castle rather than a little bungalow.

Nevertheless, that graph is a bit disturbing, no doubt about it. I don't think that the "110k" figure is anything magical, but that we are due for a major correction seems impossible to deny.

[jpillian]

Just curious, but I'd be interested in seeing that graphed along with out foreign-trade deficit.

I've had conviction for some time that it's impossible for a country to run a balance of trade deficit, sustained for any length of time. My reasoning is that when the US imports a widget, we export a dollar. WidgetCo then has a dollar. That dollar, however, is completely without any value, anywhere except the US. WidgetCo must then either buy something from the US (sending the dollar back to the US), or sell the dollar to somebody else who wants to buy something from the US. I assert that the dollar has to come back. (Because this is the only place where it's worth anything.)

Therefore, I'd assert that if we actually have been running a trade deficit, then that money must be being spent on something that doesn't count on the balance of trade report. I wouldn't be surprised if a lot of those "foreign dollars" are being spent on Real Estate. (Resulting in a vast increase in prices.)

That's a very interesting thought, Larry. Hadn't put those two together, but it certainly seems reasonable enough.

[Ancalagon the Black]

I think it's beyond doubt that the trade deficit has been used to finance housing prices.

[Larry]

Well, now, it does occur to me that one other place that "foreign dollars" could be going is into investments, (stocks and/or securities), too.

I just figure that it has to be going into something that doesn't show up in the balance of trade.

[Ancalagon the Black]

Well, now, it does occur to me that one other place that "foreign dollars" could be going is into investments, (stocks and/or securities), too.

I just figure that it has to be going into something that doesn't show up in the balance of trade.

The dollars don't even have to be "coming back" to the USA in order to create bubbles. A lot of the dollars held in reserve by foreign governments have already been spent by consumers in the USA very easily: debt.

[JMS]

Just curious, but I'd be interested in seeing that graphed along with out foreign-trade deficit.

I've had conviction for some time that it's impossible for a country to run a balance of trade deficit, sustained for any length of time. My reasoning is that when the US imports a widget, we export a dollar. WidgetCo then has a dollar. That dollar, however, is completely without any value, anywhere except the US. WidgetCo must then either buy something from the US (sending the dollar back to the US), or sell the dollar to somebody else who wants to buy something from the US. I assert that the dollar has to come back. (Because this is the only place where it's worth anything.)

Therefore, I'd assert that if we actually have been running a trade deficit, then that money must be being spent on something that doesn't count on the balance of trade report. I wouldn't be surprised if a lot of those "foreign dollars" are being spent on Real Estate. (Resulting in a vast increase in prices.)

That's exactly right Larry. Real estate, purchasing American corporations, and being stock piled as foreign currency reserves. Also being used by lending institutions to lower interest rates.

Unfortunately countries like China don't have the option of selling their dollars; cause doing so would drastically weaken the already historically weak dollar. If China simply failed to continued to purchase dollars the dollars value would implode.

Real estate is definitely one investment. But it's not the major investment of foreign countires. This is evidenced by the fact that the trade deficite is historically high while the real estate market is incredible soft. Foreign countries don't want to put their dollars into realistate if the realistate is over valued. They don't want to use it for loans if Banks are failing and loans aren't being repaid. They would love to use it to purchase sucessful American corporations, but that raises the ire of the American public.

[HOF44]

It could also be a "resetting" of housing values as the graph shows happened in the mid 40's. A spike in prices followed by a correction, but still resulting in a higher level of housing cost.

I don't have any illusions about there being a runnup and bubble right now, the question is how big will the correction be. Honestly I don't think anyone really has a clue at this time.