Posts by David Hood
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Speaker: House prices and the "Magic Money", in reply to linger,
true, for permanently I would have been better saying something like "for as long as you are measuring"
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to some extent the fundamental difference between an internal market "tulip" boom and an external wave of capital is that in an internal boom someone inside the economy has to front up with the money at some point.
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obviously not via direct swaps, but managed transitions via helpful banking institutions)
That just adds the debt as small amounts for lots of people rather than a lot for one person, as soon as you start involving third parties or shifting between value ranges. the debt still goes up.
Also the number of houses is increasing. Those houses must, by definition, break that chain of loons because it cannot be a "swap" (and as an aside, no the number of houses is not a good predictor of price either). Anytime anyone wants to exit the Nz house market (or does so involuntary) then that is not a swap either. So the network effect/ chain kicks in and those prices have to be justified by money.
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But I do agree that in a imaginary market where people only ever "buy" houses of the same value by swapping them in private sales with people of the same value houses for mutually agreed arbitrary amounts, then house value would be a meaningless measure.
I don't think we have any evidence that housing works that way though.
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Speaker: House prices and the "Magic Money", in reply to Greg Dawson,
So are the two crazy loons "lending" each other the money for the transaction? I think that is verging towards real estate fraud cases you occasionally here about from overseas.
Under that scenario everyone else with a house would need to be not selling, as any non-loon sales at the then current price would be bringing the valuation figure back towards reality.
You also need the people excluded to be permanently out of the market, because if they do save up to the new (much higher) 25% deposit, they then take on much more debt when they actually enter, and that brings debt up to balance rather than prices down.
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While it hasn't really come up in this forum, this is an example what I mean by "not detectable in other sectors of the economy"- this is business debt to banks, which if there was a growing relationship to house price would suggest some kind of mass commercial move in over the past 15 years. Now the data only goes back to 1998, but it looks like this graph.
For those interested in such things, that is an R squared relationship of 0.003, and no I did not misplace a decimal point. So that would have trouble having less of a relationship if business borrowing was actively avoiding the sector.
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Speaker: House prices and the "Magic Money", in reply to Greg Dawson,
While there might be an element of that, the bit you've missed when you say " if you’re over a certain age, debt is needed by those buying a house worth more than the one they have." is it leads to the next link in the chain of "who you are selling your house to"- either you sell your house to someone (and at the end of the chain someone needs to load up on debt).
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Speaker: House prices and the "Magic Money", in reply to Michael Homer,
OK I will agree that in the hypothetical case that in a closed tulip market you can get the same result if all of the following criteria are met:
- there is a jump in tulip prices large enough to cut people out of the market (permanently- if they enter later they will be taking on a bigger debt and everything would be back in sync)
- the records of volumes in tulip sales are kept up by everyone at the same tulip price points swapping tulips (if they move to a higher price point they will need to take on debt)
- they keep swapping tulips among themselves at the same price point to stop the volume falling back.
- no one ever exits the market by having to sell to the people that were cut out, otherwise the price will fall back.But to be honest, I can't see the explanation working if any of those are violated.
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step me through this then, because I'm not seeing it.
- in the tulip swap no increase in price is generated.
- the sale of your first tulip and pruchase of the second tulip, each for the expected price are reported to the tulip valuation authority TV
- as both tulips changed hands for the expect amount (a tulips worth of Guilders?) this leads to zero change to the total value of tulips
- as there is no increase in the value of tulips my method that looks at how much people are increasing borrowing to pay for tulips, and how much tulip value has increased correctly picks that there has been zero borrowing and zero increase in price. -
Speaker: House prices and the "Magic Money", in reply to Michael Homer,
but if you swap your tulip bulb for a tulip bulb at the same valuation, this method will zero out the transaction as it is only looking at increases.
