themselves when given half an opportunity.
They would rather bet on a 40-year mortgage
for a house that's twice the size they need,
because they figure that there's a housing
ponzi, so they'll win.
Those days are over.
Think again chump. I won't crunch the
numbers, but I'm not arguing mortgage
over rent. Mort= death, by the way.
Nowadays, most folks can't even sniff
at a house mortgage. That's a good thing
if it gets people to downsize their
appetite for land acquisition & stuff.
checkit: Automatic
earth
Spain
Has A Long Way To Go Down
MONDAY,
MARCH 04, 2013 12:59 PM
Ilargi:
I received another entry from Dave Fairtex, who delves into Spanish housing
data this time around. We had a nice discussion about it, since I question some
of the assumptions on which he bases his interpretation of the data. In
particular, I think Dave assumes 2 things:
1)
That, during the - ongoing - bust, Spanish home prices will fall to the level
they were at when the boom began (a drop of 55%), and then stop falling right
there.
2)
That there is a bottom underneath prices, determined by their "utility
value", i.e. people will always need to live somewhere.
As
for 1), it immediately makes me think of a series of 3 graphs we use in
Nicole's presentations, and which those of you who have acquired our DVD set
"A World of Change" will readily recognize:
What
you see is that in these 3 crises, the end point is (way) below the starting
point, due to what can be called the "undershoot". In each case, it
makes prices fall by well over 90% of its peak level. Now, Dave says he thinks
homes are not tulips,
and
so 2) the utility value of a house will make sure prices won't fall below the
point their boom started. Not only do I find this too arbitrary an assumption
(though, granted, in Dave's view he derives it from his data), there are a few
other things that I feel may well influence this. That is, Spain built a huge
amount of homes (more than Germany, France and Britain combined for 10 years),
of which many are of too poor a quality to last for more than 20 years.
Moreover, something is true in Spain as it is all
over the west: compared with 50 or 100 years ago, we occupy far more square
meters per capita. That means there's a potential elasticity in that if
prices remain too high, people will -
forcibly - move (back) in together with family. Because we can. Demand is
not what we want, but what we can afford. Seeing that youth unemployment in
Spain presently stands at some 60%, you really need to wonder who's going to
buy any homes there at all in the near future, and hence what bottom is
supposed to apply to this housing market. It's tempting to think things must
normalize at some point, but Spain has a crisis that extends far beyond
housing.
I
think we too easily overlook the potential for self-reinforcing, positive
feedback across an economy. If Spain were to recognize the full 55% price drop, that would be the end of a large part of its
banking system. And that in turn, for instance, would drive prices further down.
