How Recessions Work

[dmcowen674]

Originally posted by: rjain
Hey, look. Growth in the manufacturing industry caused the great depression. Dave, why do you want the country to have another depression?

I don't want to see it happen. The Country has been teetering on the edge for over 2 years, Greenspan and the Administration know it.

 

[dirtboy]

Originally posted by: dmcowen674

Originally posted by: rjain
Hey, look. Growth in the manufacturing industry caused the great depression. Dave, why do you want the country to have another depression?

I don't want to see it happen. The Country has been teetering on the edge for over 2 years, Greenspan and the Administration know it.

Yes you do. You are hoping, just so you can say, "I told you so."

 

[dirtboy]

Originally posted by: LunarRay
The price of anything is based on supply and demand. Demand for property at a particular price drops as the interest rates go up and increases as the rates go down (among other factors). This can be mitigated by those other factors but, set apart by it self (all other things being equal) this is only obvious.

Demand drops, but the price will hold steady.

 

[dirtboy]

Originally posted by: rjain
If a measure applies to a business, it applies to an individual, in general. As far as the bank is concerned, your $1,000 is as good as Microsoft's $1,000. When you default on your mortgage or need to desperately pay it off now, where are you going to get the money to do that?

You can't predict when someone is or isn't going to need to dump their house. If you could, you could stop the problem in the first place.

People aren't selling all of a sudden because rates haven't gone up too sharply. It's not the fact that people aren't selling in any case. The problem is when people stop buying. Hopefully the homebuilders will scale back at that point, but their stellar performances recently may make them overconfident, and the current gov't policy isn't going to stop that.

::shakes head:: A measure that applies to a business doesn't always apply to an individual.

People aren't going to be selling en mass when rates go up. There won't be a problem when people stop buying houses.

Call a realtor and a mortgage broker and tell them your beliefs, then get back to me. I have been involved with new home purchases, refinances and never heard of anything you speak of.

Like I asked before, have you ever bought or sold property yourself? I'm guessing that since you didn't answer my question the first time, the answer is no. If the answer was yes, you'd have a much clearer understanding on property values and interest rates.

 

[rjain]

Originally posted by: dmcowen674

Originally posted by: rjain
Hey, look. Growth in the manufacturing industry caused the great depression. Dave, why do you want the country to have another depression?

I don't want to see it happen. The Country has been teetering on the edge for over 2 years, Greenspan and the Administration know it.

Then we better not let the manufacturing industry grow too much!

 

[LunarRay]

Originally posted by: dmcowen674

Originally posted by: rjain
Hey, look. Growth in the manufacturing industry caused the great depression. Dave, why do you want the country to have another depression?

I don't want to see it happen. The Country has been teetering on the edge for over 2 years, Greenspan and the Administration know it.

Depending on your definition of 'depression' but, using mine, there is a way to get there, but Greenspan's troops have said they are guarding against that. And, that is disinflation. The downward spiral to deep recession. This of course is started by the attitude of the demanders. They don't buy pending a drop in price which fuels the layoffs and on and on. Japan has been battling this for a decade. If there is a continued increase in job loss it MAY start to shut down the buying habits of enough folks to start price drops to move product and this could get the ball rolling or falling as the case may be. And, it is like being on the edge and falling down.. there is no stopping it. I doubt, however, it will become world wide since IF it started I think the EEO would push for the Euro denominated oil issue and then we'd jump to super hyper inflation..

 

[LunarRay]

Originally posted by: dirtboy

Originally posted by: LunarRay
The price of anything is based on supply and demand. Demand for property at a particular price drops as the interest rates go up and increases as the rates go down (among other factors). This can be mitigated by those other factors but, set apart by it self (all other things being equal) this is only obvious.

Demand drops, but the price will hold steady.

It could if the property owner did not wish to sell at a lower price. Same as Sears holding product price constant when Home Depot reduces theirs.. Sears won't sell that lawnmower and Home Depot will... No gun to the head of the owner, it is his call based on his need to move the property.

 

[rjain]

And when a property is reposessed, the new owner (the bank) needs to sell the property ASAP, in most cases.

 

[dirtboy]

Originally posted by: LunarRay


It could if the property owner did not wish to sell at a lower price. Same as Sears holding product price constant when Home Depot reduces theirs.. Sears won't sell that lawnmower and Home Depot will... No gun to the head of the owner, it is his call based on his need to move the property.

There is a big difference between the price of a house and the price of a lawnmower.

Look, I know none of you believe me and that's fine. I don't really care. If you took the time to learn more about housing prices, you would see that prices aren't as elastic as you'd think from how your college text told you supply and demand worked.

 

[dirtboy]

Originally posted by: rjain
And when a property is reposessed, the new owner (the bank) needs to sell the property ASAP, in most cases.

Your point is?

And what percentage of houses get reposessed?

And how does that matter? Why do you think people pay PMI or MMI for?

 

[rjain]

dirtboy: Sir John Templeton doesn't believe you either.

 

[LunarRay]

Originally posted by: dirtboy

Originally posted by: LunarRay


It could if the property owner did not wish to sell at a lower price. Same as Sears holding product price constant when Home Depot reduces theirs.. Sears won't sell that lawnmower and Home Depot will... No gun to the head of the owner, it is his call based on his need to move the property.

There is a big difference between the price of a house and the price of a lawnmower.

Look, I know none of you believe me and that's fine. I don't really care. If you took the time to learn more about housing prices, you would see that prices aren't as elastic as you'd think from how your college text told you supply and demand worked.

Dirtboy, it is not a matter of belief. It is a matter of context. A house IS a good investment. The issue was interest rates and the affect they have on the price of homes. I said ''all other things being equal" if rates go up there is less demand for the house then before -fewer folks can meet the income qualification. If an owner wishes to sell his home he has to price it where someone will buy it and if there are fewer folks able at one price more if he lowers the price the more of a market he attracts. So depending on his need he may lower it.
IF you assume every one just popped out of the university you'd be wrong. But, for the sake of argument take a house say the one across the street, all of them an entire development of houses. Say they have 150K$ of wood in the house and the land was sold for an average of 20K$ per lot.. OK... now.. draw a graph with zero to a million along the bottom and quantities along the left margin from one to 100 say.. now then how many will be sold at the million and how many at 10$ ... then tell me about elasticity.

 

[dirtboy]

Originally posted by: rjain
dirtboy: Sir John Templeton doesn't believe you either.

Well, he's a liar.

 

[dirtboy]

Originally posted by: LunarRay
The issue was interest rates and the affect they have on the price of homes. I said ''all other things being equal" if rates go up there is less demand for the house then before -fewer folks can meet the income qualification. If an owner wishes to sell his home he has to price it where someone will buy it and if there are fewer folks able at one price more if he lowers the price the more of a market he attracts. So depending on his need he may lower it.

Research house prices in the early 80's when interests rates were 14, 16, 18% on a VARIABLE loan. Prices were up in the LA area. People were still buying.

IF you assume every one just popped out of the university you'd be wrong. But, for the sake of argument take a house say the one across the street, all of them an entire development of houses. Say they have 150K$ of wood in the house and the land was sold for an average of 20K$ per lot.. OK... now.. draw a graph with zero to a million along the bottom and quantities along the left margin from one to 100 say.. now then how many will be sold at the million and how many at 10$ ... then tell me about elasticity.

No, I was just assuming you and the other guy posting here, because you seem to have no actual experience with the things you are basing your opinions on.

You said prices will go down when rates go up. Unfortunately, you have not much evidence to prove it other than your little elasticy chart. Too bad it isn't very helpful in this example.

 

[DT4K]

rjain,

You do realize that housing prices as a national average have NEVER gone down, don't you?

They have of course dropped in certain regions due to local factors, but even when interest rates have gone up quickly, the national average housing price has NEVER gone down.

As mentioned, in times of high rates, two things happen to keep housing prices from getting out of people's reach. People choose ARM's because at historically high rates, there is a better chance of the rates dropping then of going up. People's average income typically rises since it is a boom time.
These two factors keep housing affordable without the need for a drop in housing prices.

EDIT: I have to correct myself here. I said never based on several articles I read, but I was looking for the stats. According to HUD, there have been a few occasions where there were minor drops in value for a year or two. The only stats I could find were for 1964 to 2002, so I can't be 100% sure on prices earlier than that. Here are the stats I found. But note that the times when prices did drop, the drops were very small and the prices went right back up within a year or two. Looks like the biggest drop was around 10% in 1969 to 1970.

 

[LunarRay]

Originally posted by: dirtboy

Originally posted by: LunarRay
The issue was interest rates and the affect they have on the price of homes. I said ''all other things being equal" if rates go up there is less demand for the house then before -fewer folks can meet the income qualification. If an owner wishes to sell his home he has to price it where someone will buy it and if there are fewer folks able at one price more if he lowers the price the more of a market he attracts. So depending on his need he may lower it.

Research house prices in the early 80's when interests rates were 14, 16, 18% on a VARIABLE loan. Prices were up in the LA area. People were still buying.

I'll try again...maybe latin.. Ceteris Paribus... you take all the conditions at play and determine the interest rate had no impact. The same house may have had a greater increase if the rates were lower..

IF you assume every one just popped out of the university you'd be wrong. But, for the sake of argument take a house say the one across the street, all of them an entire development of houses. Say they have 150K$ of wood in the house and the land was sold for an average of 20K$ per lot.. OK... now.. draw a graph with zero to a million along the bottom and quantities along the left margin from one to 100 say.. now then how many will be sold at the million and how many at 10$ ... then tell me about elasticity.

No, I was just assuming you and the other guy posting here, because you seem to have no actual experience with the things you are basing your opinions on.

You said prices will go down when rates go up. Unfortunately, you have not much evidence to prove it other than your little elasticy chart. Too bad it isn't very helpful in this example.

Either you don't understand the term elastic or you were saying houses don't stretch like a rubber band.
If you think that the price of houses will not be affected by the movement of interest rates.. fine.

For which of the following products do you expect to see the lowest price elasticity of demand?

socks
homes
leather jackets
automobiles

To answer this we need to return to the discussion of the determinants of demand elasticity. Automobiles and homes would, all other things equal, tend to have higher elasticities because they are big ticket items. If the price went up it would have a potentially big impact on your expenses so you might be 'persuaded' by the price increase to cut back on your purchases. The same would be true of leather jackets. Demand for homes and autos would also tend to be more responsive because they are both durable, and maybe the same could be said of leather jackets. This would tend to make demand for these items more responsive to price changes because you could continue to use what you have if the price went up - you could forestall consumption. The winner in terms of inelasticity would be socks, a small ticket item on which people probably do not even check the price.

This may be helpful

 

[DT4K]

Lunar Ray,
Do you really think prices will drop that much?
If so, what's the difference between now and times in the past 30 years when rates have also gone up but only been accompanies by minor and very temporary drops in price?
See my link above to the stats.

Are you a big moonbeam fan?

 

[CADsortaGUY]

Originally posted by: Shanti

Are you a big moonbeam fan?

He changed his name from HDJ1 to LunarRay - you decide



CkG

 

[LunarRay]

Originally posted by: Shanti
Lunar Ray,
Do you really think prices will drop that much?
If so, what's the difference between now and times in the past 30 years when rates have also gone up but only been accompanies by minor and very temporary drops in price?
See my link above to the stats.

Are you a big moonbeam fan?

Be nice.. But, Yes! Mom likes Moonbeam best... so I gotta too.. but, I would anyway.. he is good people.. this I know!

In context... I said 'all other things being equal' a change in the interest rate will have an affect on the price of homes. It is one of the dynamics that spur buying because more folks can afford a home if the rates are low and fewer if they are high. Now comes a seller trying to sell his home. Depending on his needs and wants the price he attaches will reflect this.
I don't think housing prices will drop unless the cost of building a new one does but, even then it is location. Lots of dynamics at play.
My point has not to do with the real housing market just the affect of the individual dynamics on the price of something (anything).

 

[LunarRay]

Originally posted by: CADkindaGUY

Originally posted by: Shanti

Are you a big moonbeam fan?

He changed his name from HDJ1 to LunarRay - you decide



CkG

Caddy corner.. be nice.. Moonbeam shines regardless of the weather... you just see clouds..

 

[DT4K]

Yeah, but saying "all other things being equal" automatically makes any conclusions irrelevant since interest rates would never change if all other things remained equal.

EDIT: I thought HDJ1 was moonbeam. Or at least another of his multiple personalities.

 

[CADsortaGUY]

Originally posted by: LunarRay

Originally posted by: CADkindaGUY

Originally posted by: Shanti

Are you a big moonbeam fan?

He changed his name from HDJ1 to LunarRay - you decide



CkG

Caddy corner.. be nice.. Moonbeam shines regardless of the weather... you just see clouds..

So has he been hiding because of the Lunar eclipse? :Q

CkG

 

[LunarRay]

Originally posted by: Shanti
Yeah, but saying "all other things being equal" automatically makes any conclusions irrelevant since interest rates would never change if all other things remained equal.

EDIT: I thought HDJ1 was moonbeam. Or at least another of his multiple personalities.

Hehehehehe interesting.. I see moonbeam is not currently posting... He never or hardly ever posts substantively in this topic... his alter ego does.. hehehehehe..

Well, not exactly.. the dynamics of the issue can still exist and the rate constant or rise or fall. Although, the rise or fall may affect the other dynamics too but, may not..

You see... when a model is put together each element and each link to each other element is considered with all the calculus of a NASA adventure. The basics are pure but the assumed linkage and affect of those links are SWAG based on some purported insight into reality that may or may not be true. The fact is, however, the parts of the puzzle if left by themselves will do as suggested.. it even makes sense.

 

[LunarRay]

Caddy corner.. be nice.. Moonbeam shines regardless of the weather... you just see clouds..

So has he been hiding because of the Lunar eclipse? :Q

CkG[/quote]

Not bad for a farmer... I could never hope to eclipse the Moonbeam... his broad base of knowledge would take years to reveal. You've seen only what you understand and the balance goes on into the ether.

 

[DT4K]

How do you get away with it? I tried to create an alter-identity and AT deleted my account.