What's a Country Supposed To Do About a House Price Boom?

[zerozero]

Housing bubbles: What is to be done?

Ever since American house prices started declining, people who predicted that this would happen have been crowing and slagging policy elites who failed to see it coming. I think in some ways the better question is what are you supposed to do about these situations? Right now everyone seems to agree that Norway is experiencing an unsustainable house price boom. You may have recently heard the factoid that Canadian household wealth is now higher than U.S. household wealth, but this too certainly looks like an unsustainable house price boom.
So let's say Stephen Harper phones you up and wants your advice on what he should do.

Should he take measures to push prices down? So far his government has implemented some mild regulatory changes that don't yet seem to have really curbed speculation. He could undertake more forceful measures. He could probably make those measures more effective by combining them with a stated policy goal of reducing Canadian house prices. But would that be politically sustainable? Maybe it doesn't need to be sustained. Maybe announcing a new regulatory package on Monday paired with a stated goal of bubble deflation would work really quickly. You'd have your "Minsky Moment" right there and even if Harper ended up dumped as leader by the end of July the whole thing would be on the way to unraveling. Except which problem would that have solved?

 

[Domingo Halliburton]

so, where can I buy credit default swaps on Norwegian MBSs?

 

[Mowgli]

Lower housing prices, more people buy houses. More poeple paying interest on debt. Great. Instead of getting people into so much debt they'll be paying for generations, which isnt much incentive to buy a home. This is fail.

 

[Domingo Halliburton]

Lower housing prices, more people buy houses. More poeple paying interest on debt. Great. Instead of getting people into so much debt they'll be paying for generations, which isnt much incentive to buy a home. This is fail.

you're misunderstanding the housing market. If your house goes up in value you can borrow more money against the house (which a lot of people did in the US a few years ago). Therefore creating more money you have to pay back.

 

[Mowgli]

you're misunderstanding the housing market. If your house goes up in value you can borrow more money against the house (which a lot of people did in the US a few years ago). Therefore creating more money you have to pay back.

Those people are greedy and dumb and it cost them.

 

[zerozero]

Lower housing prices, more people buy houses. More poeple paying interest on debt. Great. Instead of getting people into so much debt they'll be paying for generations, which isnt much incentive to buy a home. This is fail.

not sure what you're saying..? you're saying lower house prices are a bad thing because it encourages people to buy when they shouldn't?

the problem this article is concerned about isn't about final buyers, it's about an asset bubble.. that is to say, when house prices keep rising what's going on is that there's more money going into that market than is supported by potential returns, so the bubble will pop and be catastrophic for everyone who was depending on that sector of the economy (like the internet bubble previously)

the question is, what should the government do while the bubble is happening?

 

[TLR Is Mental Poison]

so, where can I buy credit default swaps on Norwegian MBSs?

If speculation is the problem ban buying of property by folks who don't live in the country

And make buying reqs stricter... a big part of the problem with bubbles is transaction volume... slow that down the bubble doesn't grow quickly enough to hit critical mass

 

[Mowgli]

not sure what you're saying..? you're saying lower house prices are a bad thing because it encourages people to buy when they shouldn't?

the problem this article is concerned about isn't about final buyers, it's about an asset bubble.. that is to say, when house prices keep rising what's going on is that there's more money going into that market than is supported by potential returns, so the bubble will pop and be catastrophic for everyone who was depending on that sector of the economy (like the internet bubble previously)

the question is, what should the government do while the bubble is happening?

Low house prices are good. Especially when theyre extremely low.

 

[rantanamo]

Low housing prices are good for buyers, but horrible for sellers and owners. The bubble is created when the prices are inflated, which is happening big time in Canada right now. Proper values with modest gains are what's best.

Have to stop the rampant flipping. Taxing entities need to properly valuate homes in a given area. A few overvalutations in one neighborhood can really cause a small bubble. Also sellers and buyers need to do more homework and stop trying to use their home as the big payoff for their life. Lending institutions need to be realistic as well. We're not talking about the sub prime market here, but what they will loan for a given home. They got mighty generous a few years ago, encouraging sellers to sell for higher prices more comfortably.

 

[zerozero]

Low housing prices are good for buyers, but horrible for sellers and owners. The bubble is created when the prices are inflated, which is happening big time in Canada right now. Proper values with modest gains are what's best.

Have to stop the rampant flipping. Taxing entities need to properly valuate homes in a given area. A few overvalutations in one neighborhood can really cause a small bubble. Also sellers and buyers need to do more homework and stop trying to use their home as the big payoff for their life. Lending institutions need to be realistic as well. We're not talking about the sub prime market here, but what they will loan for a given home. They got mighty generous a few years ago, encouraging sellers to sell for higher prices more comfortably.

this is a good point.. you don't necessarily need to limit the actions of money flowing in and out, you can just enforce rigor in valuation and especially in debt/mortgages/loans

 

[TLR Is Mental Poison]

Low house prices are good. Especially when theyre extremely low.

Not when you own a home. I.e. if your home is worth less than you pay or even worse less than what you owe. At least if you are looking to sell

 

[alybaba]

Increase down payment requirements
Raise the interest rate (but this threatens the economy in general)
Require insurance on non-conforming/jumbo loans
Tighten credit standards

 

[Habit]

They got mighty generous a few years ago, encouraging sellers to sell for higher prices more comfortably.

The market will take care of itself, lax lending standards is what caused this problem. Homes tripling in value in 5 years in unrealistic, then everything crashed in the summer of '07.

Some people cashed out in time and made 500k in profit. Moved to Atlanta where houses were cheaper, and lost 50k in equity instead being one of the people who lost 250k in equity in Florida.

 

[ogc163]

so, where can I buy credit default swaps on Norwegian MBSs?

You might want to look at that entire region bruh and then some

Investors Ignore Nordic Housing Bubble Risks as Hunt for Havens Picks Up - Bloomberg

Daily chart: Location, location, location | The Economist

 

[zerozero]

2005 book: Amazon.com: Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market (9780385514354): David Lereah: Books

We are experiencing a historic wealth-building opportunity, says David Lereah, chief economist for the National Association of Realtors. As Lereah has predicted, the double-digit appreciation boom–far from a real estate “bubble”–is winding down to a healthy real estate expansion that will keep the long-term fundamentals for housing strong into the foreseeable future.