Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related graphic(s).
[Click here for full post [Rutledge Blog]](http://www.rutledgeblog.com/askrutl/archives/000051.html#comments)
Source: Rutledge Blog
Although I consider myself geek-like, the chart Dr. Rutledge provides is a bit over my head but his explanation is clear. (make a mental note – consider changing this post to [Getting Text])
Dr. Rutledge’s post was written in the spring of 2005 and the comments he makes are very relevant today.
A drop in interest rates will make a permanent increase in housing prices but, over time, the growing housing stock will mitigate some of the price and construction pressure, which means the initial burst of activity, and possibly of price, are likely to moderate somewhat over time. To an information theorist, the initial spike in price is a way of amplifying the initial information signal that housing is now scarce in order to get everybody’s attention so they get out their hammers and build more houses.
So interest-rate induced housing inflation is largely a one-time event. It is not property inflation. It is not a housing bubble.
Housing inflation, as opposed to one-time increases in home prices, happens when there is a continuous increase in demand caused, for example, by systematically inflationary monetary policy. We do not have that today.
Housing bubbles pop when a sudden reversal of interest rates, or a sudden reduction in the availability of mortgage financing, causes a sudden, one-time, drop in demand. I don’t think that is going to happen either. Inflation today is likely to remain low for some time.
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