I think folks are grossly underestimating both the global demand for liquidity and the feedback action inherent in housing. We have an almost triple-witching of classic collateral concerns.
For a new home, the land has to serve as collateral for the building loan, then the building has to serve as collateral for the purchase loan, then purchase loan is bundled into a MBS where it serves as collateral in the repo market.
This makes for huge amplification effects in and of itself. Place on top of that the fact that the price of land is extremely sticky and housing suffers from time-to-build and you have the potential for a massive Yo-Yo.
I had hoped that a massive expansion in rental housing would buffer this, but alas that seems not to be going to pass. Instead this, from Bill McBride is:
Second mortgage purchase mortgage lending above 80% loan to value has begun to creep back into the market. Prudent Underwriting standards and deep risk analysis have convinced some private money to come back into the housing finance market of late. We've added an 80 / 10 / 10 product recently that has no Private Mortgage Insurance.
I will be highly shocked if it stops here. The products will start coming out of the woodwork. Loans will gush in.
Folks will say "“ have we learned nothing?
But, there is nothing that could have been learned, save for the fact that the US government needs to issue more debt and support that debt with greater immigration, but that is fantasy at this point.
The simple fact is there is not enough collateral in the world and the US government is not issuing enough debt. This will happen again and again and again. If not in housing, then in metals. If not in metals then in polysilicon. If not in polysilicon, well . . . you get it.
The core problem is that the world needs lots of young people under the rule of a democratic government. But it has old democracies and young basket case countries. This does not make for a world where safe sovereign debt can be issued.
We could attempt to reform the basket case countries but the easier solution is to youngify the democracies. Europe is beyond help in this regard. The US, Canada, and Australia are the world's only hope. More immigrants. More young immigrants and more sovereign debt.
If not, this will never stop.
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Thursday ~ April 26th, 2012 at 10:02 pm
Good book or long article topic.
My side would see political instability partly because the available stock with which to ‘youngify’ isn’t all that good. However, that aside, your broader point, which is how the world needs safe collateral is something that could use distribution.
It’d be a good time soon, for you to put together a Karl’s Ideas page.
Thursday ~ April 26th, 2012 at 10:23 pm
As long as they document and verify incomes and qualify them in full, there isn’t much to be concerned about. Prices would only stabilize as incomes are not allowed to go anywhere. There will be a shortage of lending opportunities though unless the next new thing arrives. If you want immigration, then perhaps a green card for each doctorate granted to a foreign national.
Thursday ~ April 26th, 2012 at 10:23 pm
sounds like a Ponzi scheme
Thursday ~ April 26th, 2012 at 10:50 pm
Here’s another one, this one about the LA area: http://articles.latimes.com/2012/apr/22/business/la-fi-commre-comeback-20120422
Friday ~ April 27th, 2012 at 3:51 am
It sounds like what you are promoting is a scam.
For example, we say that the health care reform is only affordable if everyone is forced to buy insurance.
But the only reason that sounds true is for young people to literally throw $3,000-$4,000 out the window every year because there is NO WAY you are spending that much on medicine unless you get a terminally-ill illness and most people would prefer to just take their chances in that regard.
Plus, if you have a terminally-ill illness, do you really need to worry about your finances going forward?
You’d have to get sick an average of 6-8 times per year just to break even and no one gets sick that often. The only time of your life where coverage starts becoming useful is when you have a lot of precautionary tests or when your body starts breaking down, but provided you don’t abuse your body, that won’t happen until at least 50 years old.
So for anyone under 50 and certainly under 40, all health care is is a ponzi scheme. The young people are forced into paying for something they don’t need so that further down the line, others will pay for them.
And that is the point you are promoting in general. Young people generally don’t need the government at all, so by having a large percentage of your people be young, you can screw them with endless taxes that they will never take advantage of.
I’m not sure what the ideal age composition of a country is, but I can say that I would NEVER promote the authority of government to continue screwing its citizens, which is the crux of your post is aimed.
Friday ~ April 27th, 2012 at 3:54 am
I forgot to include this in the original post, but the health care example is only an example.
This scam applies to anything this author’s post refers to: Social Security, Medicare, etc. are both ponzi schemes too, but because elderly people have begun dependent on it, they support it.
That actually perfectly illustrates the dangers of becoming dependent on the government.
Additionally, I’m not sure why you think it’s a good idea for the US to issue more debt? Wouldn’t that just accelerate the inflation cycle until it becomes unsustainable?
Friday ~ April 27th, 2012 at 10:30 am
The core thing health insurance buys you is big ticket life-or-death items say cancer treatment where $100K or $200K will cure you and allow you to live healthy decades afterwards. Or incurable diseases that don’t kill you but where you can have a reasonable life as long as you get regular but expensive treatment for the rest of your life.
It’s not black and white where you get either a harmless cold where you just need a pain killer, or a thing that kills you in two months…
Friday ~ April 27th, 2012 at 7:55 am
Sounds like a good reason to think about limited abortion…besides the moral and religion reasons. The U.S. needs young people with good technical skills, but we are not producing them, our immigrants (most illegal) are unskilled and our legal immigrants are being limited by protectionist policies to mullify the unions.
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