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Supply and demand. Sorry to repeat myself.
Topic Started: 4 Aug 2013, 11:13 AM (17,707 Views)
Wisebear
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peter fraser
8 Aug 2013, 11:54 PM
If you had read what I posted you would have noticed that I factored in a change to the availability of credit, which is what happens in the real world, although it mightn't in the model that only exists in your mind.

when credit becomes more available all of those people who wanted to buy but couldn't because they didn't have the ability to raise credit, suddenly become enabled, and they surge into the market and an undersupply has been guaranteed by the credit squeeze.

If you really want to cause a massive future housing boom, then create a credit squeeze now.

I actually cannot believe that there are still people who believe the clearly idiotic myth that a credit squeeze is a good thing for housing demand. Seriously how can you? there isn't a shred of evidence to support that in any long term scenario.
Peter, it's really very simple.

My definition of demand is the official one from economic text books not made up like yours, MIW's or Shadows.

This states that if you don't have the funds you don't demand therefore you don't effect price.

If later on these people get funded then they can demand goods and affect the price i.e. active, available funds creates demand not people's wants or needs.



Tell me, if there was a credit squeeze and mortgage rates doubled over, say, the next few years, what do you think would happen to housing demand & prices?
And do you think the outcome would be good for anyone?



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Shadow
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Evil Mouzealot Specufestor

Veritas
9 Aug 2013, 12:15 AM
What about cars and boats?
Cars and boats are normally purchased using credit, but people don't bid up the price of cars and boats because...

1. There is a practically unlimited supply
2. Demand is relatively elastic (it is not absolutely necessary for most people to use a car or boat)

This differs from housing because with housing...

1. There is a limited supply
2. Demand is inelastic (it is necessary for most people to live in a dwelling)

Bottom line, unless demand exceeds supply, all the 'easy credit' in the world won't cause people to bid up prices.

This goes for housing just like any other product or service.

Look at Japan - credit is very easy, but people are not bidding up the price of houses.

Why? Because the population is in decline so there will always be an excess supply of dwellings.
Edited by Shadow, 9 Aug 2013, 12:24 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Veritas
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Shadow
9 Aug 2013, 12:20 AM
Cars and boats are normally purchased using credit, but people don't bid up the price of cars and boats because...

1. There is a practically unlimited supply
2. Demand is relatively elastic (it is not absolutely necessary for most people to use a car or boat)

This differs from housing because with housing...

1. There is a limited supply
2. Demand is inelastic (it is necessary for most people to live in a dwelling)

Bottom line, unless demand exceeds supply, all the 'easy credit' in the world won't cause people to bid up prices.
Yeah, I know.

I understand the supply side dynamic just fine as my initial posts in this thread will attest.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Wisebear
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Shadow
9 Aug 2013, 12:20 AM
Bottom line, unless demand exceeds supply,
It's the easy credit that causes demand exceeds supply.

Quote:
 
all the 'easy credit' in the world won't cause people to bid up prices.

Now this is a quote I've got to save.

So let's say banks were to offer $2m mortages to anyone that wants one at , say, 0.1% fixed for 20 years.
You don't think that this will cause demand to exceed supply because people won't bid up prices.
Shadow you really are special.
Edited by Wisebear, 9 Aug 2013, 12:36 AM.
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miw
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Veritas
9 Aug 2013, 12:06 AM
No demand is still enough to cause inflation.

But a lot of people cant/wont buy.

You can see that in how rents surged since 06.
But those people still rent - i.e. they are still demanding and consuming housing.

Incidentally, rents indeed surged from about '07 or '08, but they have flattened off a lot now. The shoe is moving to the other foot.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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skamy
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Wisebear
9 Aug 2013, 12:16 AM



Tell me, if there was a credit squeeze and mortgage rates doubled over, say, the next few years, what do you think would happen to housing demand & prices?
And do you think the outcome would be good for anyone?



If there was a credit squeeze and interest rates rose too high you can look to the 90's to see how that scenario played out.

I will try to keep the explanation at your level of debate as I see you have some difficulties with more complex definitions of words.

House prices dropped, housebuilding stopped ,unemployment rose, then rents rose and people ended up in dreadful living conditions. The government did not like this and new houses needed to be built so the squeeze ended and what happened, yes Peter got the answer right - a massive huge big bubble of price growth.
Here is a picture from the UK

Posted Image

Things to note
1. The small drop in prices during the credit squeeze
2. The humungous price rises when the squeeze ended.


HTH
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Veritas
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miw
9 Aug 2013, 12:33 AM
But those people still rent - i.e. they are still demanding and consuming housing.

Incidentally, rents indeed surged from about '07 or '08, but they have flattened off a lot now. The shoe is moving to the other foot.
Sure, and where are they renting? In established builds bought by investors not adding to supply by buying new and thus making the supply and demand imbalance even worse.

Anyway, you get the picture.

Price rose because supply just couldn't keep up with credit fueled demand. Ask Luci Ellis, she says exactly that in her 2006 paper on the subject in posted earlier.

Natural demand caused by demographics was turbocharged by falling interest rates and banks who, all over the English speaking world, decided to liberalize their lending practices.

This is not opinion. It is fact.
skamy
9 Aug 2013, 12:36 AM
If there was a credit squeeze and interest rates rose too high you can look to the 90's to see how that scenario played out.

I will try to keep the explanation at your level of debate as I see you have some difficulties with more complex definitions of words.

House prices dropped, housebuilding stopped ,unemployment rose, then rents rose and people ended up in dreadful living conditions. The government did not like this and new houses needed to be built so the squeeze ended and what happened, yes Peter got the answer right - a massive huge big bubble of price growth.
Here is a picture from the UK

Posted Image

Things to note
1. The small drop in prices during the credit squeeze
2. The humungous price rises when the squeeze ended.


HTH
Tell me Skamy, what caused this second big bubble of price growth if it wasnt the credit boom?

Oh sorry I forgot you disagree with Glen Stevens when he says the world had a credit boom. :re:

Posted Image
Edited by Veritas, 9 Aug 2013, 12:48 AM.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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skamy
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Wisebear
9 Aug 2013, 12:32 AM
It's the easy credit that causes demand exceeds supply.



Now this is a quote I've got to save.

So let's say banks were to offer $2m mortages to anyone that wants one at , say, 0.1% fixed for 20 years.
You don't think that this will cause demand to exceed supply because people won't bid up prices.
Shadow you really are special.
The fallacy that sits behind your viewpoint is this silly myth that the banks are giving people bigger loans than their income warrants. They have not done this the banks have been lending the same relative to income for decades.


Your whole silly thesis for credit causing price rises in based on a fundamental lie that either you have been sold or you are trying to sell to us of on this forum.

If it is the latter I suggest you go back to macrobusiness,there area lot of cheap house dreamers over there who will suck up this silly garbage.

Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Veritas
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skamy
9 Aug 2013, 12:48 AM
The fallacy that sits behind your viewpoint is this silly myth that the banks are giving people bigger loans than their income warrants. They have not done this the banks have been lending the same relative to income for decades.


Your whole silly thesis for credit causing price rises in based on a fundamental lie that either you have been sold or you are trying to sell to us of on this forum.

If it is the latter I suggest you go back to macrobusiness,there area lot of cheap house dreamers over there who will suck up this silly garbage.
Skamy, do us all a favour and just fck off would you?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Profile "REPLY WITH QUOTE" Go to top
 
Shadow
Member Avatar
Evil Mouzealot Specufestor

Wisebear
9 Aug 2013, 12:32 AM
So let's say banks were to offer $2m mortages to anyone that wants one at , say, 0.1% fixed for 20 years.
You don't think that this will cause demand to exceed supply because people won't bid up prices.
It would depend on supply. If there was a virtually unlimited supply of houses, then no, people would not bid up the price of houses, in the same way they would not bid up the price of cars or boats if the bank gave them $2m at 0.1% fixed for 20 years.

Quote:
 
Shadow you really are special.
Thanks. :)
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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