One comment stood out today in Mish's post -
Because the rise in inflation (money supply and credit) fueled asset
prices in the 1990's, the housing bubble from 2001 to 2006, and stocks
from 2003 until recently. None of this was properly measured for the
simple reason it is impossible to measure the effect of credit inflation on
the stock market or housing market.
The misguided hope that housing prices are at or near the bottom ignores the reason for the boom during the earlier part of the decade. As Mish points out, prices were not driven by an increased ability to pay. Instead, unnaturally low interest rates fueled creative lending which fueled speculation which fueled creative lending which fueled speculation.
The chart below courtesy of James Ballenger, shows home prices vs. incomes during the housing boom. Banking on appreciation is wishful thinking as long as banks are wary to lend.
Creative lending is not coming back any time soon, income growth is stagnant, and the economy - by most intelligent measures - is already in recession. Anyone in the market for a home should be patient. Don't try and catch a falling knife. Even if prices don't fall too much further from here, they won't rebound any time soon. There's plenty of time to find the right deal.
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