Friday, September 06, 2013

Priced Out of Housing

David Atkins is having a go at this debate, but generally, I think he comes up short.  He goes off this piece from realtors, and accurately points out that whatever housing recovery we are having makes the problem worse.  His conclusion:
Keep in mind that policymakers are as we speak attempting to inflate the value of real estate, even as current prices make the traditional American Dream an unrealistic fantasy for most young adults.

The economy is broken, and none of the asset inflaters in government are even aware enough of the basic problems to even attempt a fix.
is not very good though.  The fix for this problem actually is inflation--just general inflation, not housing only.  By holding house prices down, current owners are worse off.  By raising those prices in an environment where overall inflation is very low, prospective buyers are worse off.  The best situation is to have higher general inflation.  That means higher income for prospective buyers and declining value of debt in real terms for existing homeowners.

However, the federal reserve isn't actually willing to do what is necessary in this regard (despite the fact that they are the only entity with that ability), so we are left with next best options.  In this case, because real estate has been a major drag on the economy, there is some hope that inflating house prices would lead to broader economic recovery, which would produce the necessary wage growth.  I'm not actually optimistic because 1. housing seems to be at a good point now, and so further price inflation may be bad, and 2. the fed is likely to kill any recovery by raising interest rates once inflation goes a tad over 2%.

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