Bay Area Real Estate Trends

Felix Salmon explains nicely why Italy is a problem now, as it’s bond yields top 7%: If you die, the proximate cause of death is always the fact that blood has stopped flowing to the brain. Similarly, if you’re in a crisis, the proximate cause of the crisis is liquidity, or rather the lack of [...]

Operation Twist is the new economics phrase of the day, but what is it and what does it mean for the housing market?

In the last 48 hours, so much news has come out of Europe that has me frankly shaking my head. It is a strange game of brinksmanship they are playing, and it is one we should be paying attention to (as if the brinkmanship played by US politicians over the debt ceiling is not enough). This week we look at what seems to be European leaders taking random walks through the minefield at the very heart of the European Experiment.

Higher inflation means US debt is easier to pay back, as nominal GDP is what we pay taxes on, not inflation-adjusted. Inflation is a tried and true method of dealing with too much debt. Inflation is also just another word for default, but it sounds so much better to the ear.

The Fed makes banking policy decisions, largely influenced by the level of inflation, yet home prices are excluded from the calculation. As home prices skyrocketed, inflation – as it felt to people on the street – was probably underestimated. With today’s falling home prices, we could be in a more deflationary environment than economists give credit.

If we want home prices to bottom, well then we must let them fall.