alt.politics.economics

Travis Jordan wrote:
> "*Anarcissie*" wrote in message...
>
>
>>The Dangerous Disconnect Between Home Prices and Fundamentals
>
>
> In some states, 60% or more of recently sold properties are owned by
> speculators who borrowed money at low (adjustable) rates, expecting to 'make
> a killing' when they flipped the property. Can you say "Dutch Tulips" or
> "Dot Com Boom"?
>
> The owners and their lenders are now getting a rude awakening to the
> realities of market pricing.....
>
>
Land prices have always gone through boom and bust cycles because land is not
produced by labor. A credit system like ours monetizes rising asset prices and
thus creates rising asset prices.

Because they know that nearly all the dollars they lend for buying land go back
into purchasing land, Bankers can lend money that does not represent prior
production. They in essence create money by lending for land. The mortgage
payments are made by workers' production. This is the "real" money that bankers
and their shareholders spend on consumables.

Land price is funny. It's a self-fulfilling prophecy put up by mortgage lenders.
Rack-rent is what bankers are after. They diddle with interest rates and land
prices but what they want is rack-rent. They want it every month from every person
who owns land. Unlike consumer credit lenders, mortgage lenders could get rich
lending at zero percent interest. And they could start with very little real money
to back up their loans. This is because the vast majority of land selling money
goes right back into land buying. And as long as land buyers are paying rack-rent
to lenders the lenders are doing fine.

Look at the average mortgage borrower who is also a producer of useful goods and
services. Over his land owning life how much goods and services will he consume
net from selling real estate? Very little. But look at all the mortgage payments
he's made from the G&S he produces each month. He's always lived in a fully
depreciated house with maintenance coming out of his pocket. Everything he's paid
to the mortgage lender is rack-rent. When interest rates rise, home prices fall.
Why? Because everything is adjusted to get rack-rent monthly payments. When
interest rate fall, home prices rise for the same reason.

Land prices rise more because they have risen some. And bankers can always cover
the price with credit.

Say land prices are stable. Then land goes up 1% a year. This rate becomes
reflected in higher prices. Whoa. Now land is going up 2% a year. This rate is
reflected in still higher land prices. WhooBoy. Land is appreciating at 3% a
year. This money investment opportunity is rolled into still higher prices. The
bubble keeps on growing fueled by itself. It's chasing its own shadow.

After the appreciation rate is really cooking and land prices seem like such a big
pay-off sure-fire return, capital gains investors bite off more than they can chew.
They figure on buying more house they can afford and then cashing out in a couple
of years for an untaxed windfall. But then something like a big jump in gas prices
hits along with a costly war and the economy at large slows down. The marginal
players default. Now the bubble phenomena runs in reverse but in one big "POP".
Land appreciation rates stall. This immediately causes a collapse of speculative
value. This means that if land prices stop rising, they must fall a good bit
before momentarily resting at zero appreciation rate. Then the process starts all
over again.

Mark M.