Now I know there is a plethora of reasons why banks are reluctant to lend money. The economy, the housing bubble, new regulations effectively turning off the spigot, etc., but until that valve is turned on again, your housing prices won't recover.
Saturday, August 13, 2011
Cutting Off the Flow
For all the monetarists out there who know prices of all items are simply a function of supply and demand, and who also know velocity is transitory, I found this chart interesting. For the first time since the series has been tracked, real estate loans have dropped. And not only have they dropped, they have dropped significantly.
Now I know there is a plethora of reasons why banks are reluctant to lend money. The economy, the housing bubble, new regulations effectively turning off the spigot, etc., but until that valve is turned on again, your housing prices won't recover.
Now I know there is a plethora of reasons why banks are reluctant to lend money. The economy, the housing bubble, new regulations effectively turning off the spigot, etc., but until that valve is turned on again, your housing prices won't recover.
your housing prices won't recover.
ReplyDeleteGood. Housing is WAY overpriced and needs to fall significantly. This is unfortunate for those who are currently paying a bank for an overpriced house, but as with all overpriced items, it must fall to market equilibrium sooner or later.
From the chart, I would assume that the quantity of loans has dropped. But, the chart is acutally graphing the dollar value of those loans. I wonder what percentage of the drop is due to the quantity of loans vs the amount of the loans.
ReplyDeleteRegardless, I don't think it makes any difference to what you are highlighting.
This chart shows aggregate loan value. Since house prices are down 10-30% in many areas, an equal volume of sales would reduce aggregate loan values.
ReplyDeleteAlso, in the past people were taking out 100% LTV loans. Now a greater down payment is required.
It would be better to look at the total number of loans. However, in the most strongly affected areas, all cash transactions are unusually high. Obvious speculation.
The decline is something to celebrate, unless you are someone in urgent need to sell their home and you have no equity.
In simple terms:
ReplyDeleteyou don't tend to take a loan when you are unemployed. (problem # 1).
you don't typically get a loan when Barney Frank controls who gets to write the loans and who get to receive the loans ref:Frank Dodd (problem # 2).
Problem #3, Obama is still in office and has killed the private sector.
Solution: Fix problem # 3 and problem 1 and 2 will correct.