bostonbubble.com

[balor123]

Buffet on housing

Note the quote:

[admin]

I think I might agree with Buffet, with the caveat that this will only hold if interest rates match current expectations. His comments agree with recent housing futures and my stab at a payment-to-income ratio. I expect the payment-to-income ratio to move within the typical range in coordination with the business cycle, as you pointed out earlier. I also see signs of business picking up now, based on my completely unscientific personal impression of a recent increase in headhunter spam (for software engineering). That is to say, the nominal bottom predicted at the end of 2011 by the futures contracts seems plausible for the current level of interest rates. However, interest rates are a single point of failure for the housing market and I do not want to bank of them remaining low. I would attribute all inflation adjusted price gains over the last three decades to falling interest rates (not low rates, but declining rates), I expect the process to work in the opposite direction if and when rates start rising, and I think that there is very little room for them to fall further. So while we might hit a nominal bottom soon, the upside from there appears limited to the business cycle whereas the downside is substantially larger and longer term.

- admin