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76

That would be really, really bad. Any house that loses value will be unsellable, and thus virtually worthless. Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house. A black ...


28

And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right? It is true, your investment cannot drop in nominal value (not counting inflation,) but it can become totally illiquid, which is worse in many ways. You see, if a stock drops in value by 5%...


12

Mandating a house be sold at last price sold does not mean that people value it at that sticker price. I could mandate that water bottles only be bought for $1,000,000. This does not mean anyone would buy. I'd just be stuck with a bottle that I don't value. Similarly, setting price floors on the housing market would mean many owners will be stuck with homes....


11

If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in. Firstly, it's not that bad, ...


7

In general, "Ponzi schemes" in the context of asset pricing refer to "rational bubbles", or a failure of the transversality condition you need when passing from a flow identity to a present value identity. They are not "fraudulent schemes". For instance, there can be a rational bubble on a "fundamentally" worthless asset in a perfect foresight world if its ...


7

Bursting bubbles don't destroy actual wealth. Instead, they stop destructive processes which convert actual wealth into imaginary wealth. Suppose it would cost \$120,000 to build a house that's would be worth \$100,000 in non-bubble conditions,but market conditions in a bubble would cause such a house to sell for \$150,000. Building a house under such ...


6

Brian is right. The claim was that, if you took the cost per square meter of land area in Tokyo based on market rates, the Imperial Gardens in Tokyo were worth more than California. Source: http://articles.chicagotribune.com/1989-11-19/business/8903110641_1_land-prices-national-land-agency-rockefeller-center Obviously, this is a classic example of a ...


6

There will be a rapid rise in artificial schemes to get round the letter of the law. For example, an agent may charge you 90% of the minimum legal sale price to officially register your house as uninhabitable and obtain a compulsory demolition order for it. A new house built on the same site would not have any previous price history, so it could be sold for ...


5

What is the reasoning behind the notion that because bitcoin has no intrinsic value therefore it's not suitable as currency? Or, to put another way, if no one "held" US dollars, but simply used them to spend or invest, would that invalidate it as a currency for buying chickens? The author addresses the difference between bitcoin and fiat currency (...


4

This would be a catastrophically bad idea. The next time the economy turns down, what happens? Workers who own houses for which they cannot find a buyer at the same price they paid for the house, will be unable to move house. They will therefore be unable to take up employment elsewhere. So you have compounded an economic downturn with an artificial ...


3

Price is the thing that balances supply and demand, if you fix prices artificially low then you create supply shortages. If you fix them artificially high you create demand shortages. So people who want/need to sell their houses in an area where demand has dipped would be unable to do so. Even in areas where natural demand had not dipped buying a house ...


3

In a fractional reserve monetary system loans create money and loan repayments destroy money. Most bank lending in modern times is for the purpose of purchasing real estate. So the amount of money that exists in the economy is closely tied to the enthusiasm for purchasing real estate. You could not really make this kind of statement for any other class of ...


2

This a highly disputed question! There is a new and interesting paper by Òscar Jordà, Moritz Schularick and Alan M. Taylor about "Leveraged bubbles". They study bubbles in housing and equity markets in 17 countries over the past 140 years.


2

In general, it is possible to find assets that earn a positive yield. There are still positive-yield low-risk bonds and savings accounts out there, for most currencies. Therefore, rational people should in general prefer these to a higher-risk asset which has zero yield. So, your quote is saying that the only way that rational people will choose to hold a ...


2

This is a very unique situation in Dallas/North Texas. This is the absolute worst economic growth possible for locals. Here are two key elements to look into: Wages are fairly stagnant in DFW. This paired with 40-50% home/rent increases is the first warning sign. Re-assessed tax values - expect numerous foreclosures in the next two years. Many people are ...


1

You are probably not far off the mark. While there may be no consensus what a bubble is, one proposed definition is Unusual changes in single measures, or relationships among measures (e.g., ratios) relative to their historical levels. For example, in the housing bubble of the 2000s, the housing prices were unusually high relative to income. For ...


1

Clearly false. One of the largest skyscrappers in Tokyo has an area of 2,630,300 square feets. Estimating value per square feet to be \$5000, its value is less than $15 billion. The houses in Los Angles alone were worth an estimated $2.5 trillion this year. Assuming that both estimates are off by a factor of 10, and the skyscrapper was once worth ten times ...


1

I would say cryptocurrencies are in a speculative boom phase based on examples of Ethereum being 10 dollars in 2016 and jumping to 370 dollars the following year and Bitcoin going from 900 dollars to 10,000 dollars in those same years. With that said, speculative boom phases are poor guides to future valuations and the maturation trajectory of a new sector. ...


1

An Economic bubble "bursts" when we see a sudden drop in price (as you have said in your question). Wikipedia has an appropriate comment on the issue of bubbles being: "...bubbles are often conclusively identified only in retrospect, once a sudden drop in prices has occurred. Such a drop is known as a crash or a bubble burst." Thus Economic bubbles (...


1

An economic "bubble" bursts when the buyers in the market deem the good or service to be overpriced. At a certain point, the price of whatever is causing the bubble will reach a certain "threshold price." It is at this "threshold price" that the corresponding amount of "threshold buyers" is reached. These buyers will stop buying (or continue not to ...


1

I can't add a comment as I don't have enough rep, so this is my reply to @LetTheWritersWrite. First off, as for a recession: It is believed by many economists that we are beginning a recession right now. We're beyond the 80 month average in expansion periods, we had the first monthly decline in core inflation in 7 years, retail sales #'s have been much ...


1

A bubble is when the price of a speculative asset becomes unreasonably high. If we are talking about the housing market this means the price of real estate. When the bubble bursts the price comes crashing down and people are left with assets that are now worth much less than what they paid for them. A major reason the housing bubble was so bad was because of ...


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