[llamaman]

I believe the author is referring to high inflation as measured by things that reserve banks look at (in Australia this would be the consumer price index etc); while house prices either stay stagnant or rise slower than said rate of inflation.

Thus, the nominal price of housing is maintained, while the real value tanks.

How this might happened is something I do not have the economics to know - as you mentioned, an increase in the supply of money would probably simply flood into the existing housing market, overheating it further. Arguably, that's what's happened in Australia post 2008 and the US pre-2008.

[mistermann]

> I believe the author is referring to high inflation as measured by things that reserve banks look at (in Australia this would be the consumer price index etc); while house prices either stay stagnant or rise slower than said rate of inflation. Thus, the nominal price of housing is maintained, while the real value tanks.

Yes, this makes perfect sense in theory - housing inflation has dramatically outpaced everything else, so if the government causes a whole bunch of monetary inflation by printing money and that money doesn't go into housing but goes into other things (maybe even wages!), then it will let those prices catch up, while also devaluing the cost of the housing debt.

But I think printing money is what got us into this situation in the first place, it just mostly all went into housing, to stop that from continuing you'd need to change the collective beliefs of nearly the entire population. This is one thing that could genuinely be "different this time": the belief that real estate always goes up. And you can hardly blame people, because it's more or less true, and is virtually guaranteed by more than one government policy.

[AnimalMuppet]

I think the key is interest rates.

Most housing doesn't face the demand part of supply and demand in the purchase price. The demand curve is set by the monthly payment. The relation between monthly payment and total price is controlled by the interest rate.

So if interest rates rise, home prices have to drop (or at least not rise) until wages rise.

Unfortunately, this doesn't actually help, because it doesn't lower peoples' monthly payments...

[bobthepanda]

Housing markets are only overheated if supply is not keeping up. There are scenarios where an overheated market leads to oversupply of housing; but there is a few years' lag between investing in construction and the units coming online due to the time it takes to finance and construct housing.

[mistermann]

> Housing markets are only(!) overheated if supply is not keeping up.

Would this imply that there was a tulip shortage in Holland in the 1630's, or am I being excessively pedantic and should have assumed a prefix of "In the long run...."?

https://en.wikipedia.org/wiki/Tulip_mania

Or another way of putting it is: is there evidence that all markets are perfectly balanced at all times, always and everywhere? Is the market perfectly rational, or do various ratios sometimes vary for no mathematically obvious reason?

[bobthepanda]

If supply were able to keep up with demand, then the tulip price could've stayed the same. Of course, we live in the real world, where you can only ramp up production of good so quickly. But no one said the demand is rational.

There are places which manage to build housing without massive price appreciation, like Tokyo. But once the market's too overheated because of supply mismatch you basically can't cool it down only using construction, because construction time takes so long.

[mistermann]

> But no one said the demand is rational.

If the demand isn't rational (for example, actual need for physical shelter), it doesn't require a lack of supply for a market to become overheated.

Markets can be very strongly affected by greed and mass delusion, an actual lack of supply is not required to drive prices up significantly. You could have a fun pedantic argument over that last statement if you don't want to differentiate on the different kinds of demand, but my point is that demand can vary dramatically with little change in underlying fundamentals - human emotion is more than enough.