Dr. Housing Bubble 10/15/13

[Crewleader]

The inefficient and fragile housing market: How trying to increase homeownership can backfire and add costs to regular home buyers.

It was interesting to see that this week, the Nobel Prize, the biggest prize in economics went to three US economists, one being “irrational exuberance” Robert Shiller. Markets for the most part are presumed to be efficient and what Shiller points out is the weaknesses inherent with this model. The housing market is a perfect example. The market is extremely inefficient when it comes to housing. We massively subsidize this sector of the economy with the outward notion of helping regular buyers but do the opposite. For example, the Fed’s QE initiatives have caused asymmetrical bets from financial institutions into residential real estate. Largely because of this financial structure we went from a real estate market in free fall to one highly subsidized by low rates causing investors to crowd out regular buyers. Prices now surge while the homeownership rate falls. Of course how can the market be called efficient when the Fed provides this below market interest rate to a select group of people? Is the public privy to this? What use is a low rate when a bigger player comes in with all cash?

http://www.doctorhousingbubble.com/inefficient-fragile-housing-market-fed-qe-subsidy-housing-market-government-shutdown-real-estate/