I was flipping through Jane Jacobs' 2004 book 'Dark Age Ahead
' last night and came across the following passage that I thought I'd pass along for all the economists and pundits out there who offer their plaintive cry of 'hoocoodanode?' with respect to the collapse of the U.S. housing bubble,
"As prices of houses and condominium prices rise, owners can continually borrow more against the rising value of these assets. In Canada, ratios of household debt to household income are thus at record levels.
The miracle of money growing on houses operates even more potently in the United States, where mortgage interest is deductible from income tax and where purchases of resale houses reached record high levels in 2002, as their prices rose to record high levels and mortgage interest rates fell to record low levels. Perhaps the conservative think-tank economist quoted above foresaw and welcomed this bubble. It will burst, either if rising prices significantly push up inflation rates, hence also interest rates, or else if house price inflation slows, halts or retreats."
Labels: hoocoodanode, housing bubble, housing market