Sunday, July 31, 2005

RE Bulls' Argument Based on Increased Demand is Bull

This article posted on Financial Sense is worth reading; it shows that "there never was a Demand-driven need for the new Supply [in housing]". I've heavily edited out the tables and other data for brevity. I strongly encourage anyone who is interested in this article to check it out for themselves.

Some choice quotes:
"There is no claim that is made more often and with greater zeal in the US financial media than that the rapid rise in the housing prices is due to the basic Demand for housing (a place to live) exceeding the Supply in the recent years, especially, at the present."

"The most important thing to note... is that the Owner Occupied Housing has gone down substantially. Yes, many former owners are glad to sell at the recent high prices and rent from rapidly increasing purchases by “investors.” Also, the Demand seems to be shrinking due to extremely high prices, as one would rationally expect."

"...for the 30 months up to 2004Q4 the Owner Occupied Housing, or homeownership rate, was rising, not smoothly but steadily."

"...we can get a five year picture ending in 2007Q2 and what we see is a disastrous imbalance between the Supply and Demand."

"There never was a Demand-driven need for the new Supply. It was strictly a low-interest rate and loose lending standards driven rise in prices that drew in speculators beginning in 2003-4. For the past three years 1/3rd of the new units added are lying vacant and in the past six months 2/3rd of the new units added are lying vacant. At some point the reality of the Supply and the Demand for housing (as in living in a house and not speculating) will assert itself and all the speculative buyers will have hell to pay."

"As to Mr. Barsky’s claim of purchases of second homes, anyone who is borrowing 80-100% to buy a second home at the current prices is courting disaster. Mr. Barsky’s article is a perfect example of self-serving propaganda that is the norm in the US financial media including the WSJ."

"The data from the Census Bureau is a box of dynamite for the Housing Bubble -- the primary source for the worldwide liquidity -- and the last stand before the Global Depression. Chinese and Indians have a nasty surprise waiting for them as to what was the real source of their boom for the past 3.5 years. Those ignorant of history find all kinds of explanation for bubbles and booms. There is nothing secular about liquidity-driven, or Debt-driven, booms. They always go bust."

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