Greenspan warns last week that there is "froth" in the market for homes. Now We hear there is over a 4% rise in Home Sales, this vastly increasing the number of yearly sold units. What is happening? No One can be sure, but this Author has his suspicion: Homeowners are overextended, and have start to 'Buy Down'. This Process rids Homeowners of too large a level of Debt, reduces their monthly Mortgage payments, and allows for Capital Gains-taking without Tax penalty, and a future mortgage credit. They are also joined by Speculators, who think to profit from the new round of compulsive buying'.
The real problem is the produced increase in Housing prices, over a 15% Price rise year over year. This causes a problem! Homebuilders witness higher Profits coming from new Home construction, and therefore, they push hard for new construction. The mortgage Tax credit, and Homeowner indebtedness, send false economic signals to the Construction and Realty industry. Pricing proclaims an acute shortage of Housing, when a glut of Housing is growing!. The Problem defined is: When will the Housing Glut overbalance the economic impact of the mortgage tax credit, causing Housing prices to plummet?
This Author is also comforted by the knowledge that the OECD disagrees with his basic prediction of yesterday, but due solely to imaging that the Japanese and American economies differ substantially in emerging market forces. lgl
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