Tuesday, November 21, 2006

The fed and housing






I don't care what the Fed does to "help" housing, the Fed can give money away, and the Fed can bring rates down to one percent again. But the Fed can't change the supply-demand situation in housing, and the Fed can't change the overvaluation equation. If housing inventory is too high, it's got to be worked off, and that takes time. If houses are too expensive, there's nothing the Fed can do about it, except make it easier for some fool to buy an overpriced house.

The Fed knows all about the housing situation. Every analyst and economist knows about the housing situation. If you can read a newspaper you know about the housing situation. What nobody knows with any certainty is how the housing situation is going to work itself out.

I believe in the regression to the mean. When any item, I don't care what the item is, becomes overpriced, then somewhere, ultimately, that item tends to regress to the mean, to its average price over a period of time. It's generally conceded that home prices are anywhere from 25% to 50% above their mean price of the last 25 years. Houses won't stay overpriced forever. Although home prices have been holding up fairly well so far, the bids have dried up. Furthermore, it's taking a lot longer time to sell a home. This suggests that home prices may be just beginning to regress towards the mean.

2 Comments:

Blogger JOATMON said...

Supply and Demand... looks like a successful analysis to me. Demand is being limited by higher prices and higher interest ratrs as evidenced by the affordability indexes being extremely low (< 10% can afford the median priced home). Supply is increased since the toxic financing used by recent buyers is due to reset at a higher cost and those homes listed for sale are increasing the market's supply.

10:47 PM  
Blogger AnalysisGuy said...

Today's report is out on Atlanta and it's first for AnalysisGuy. No big bubble.
Daily Home Price Analysis

1:39 PM  

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