Wednesday, June 15, 2005

Yes Virginia, There Is A Housing Bubble

Yes Virginia, There Is A Housing Bubble

It's been over a week since my latest Cassandra-like post on the housing bubble, so it was quite fortuitous when I ran across this post on Always-On.

In it, Eric Janszen paints a gloomy picture of just how out of control today's real estate bubble is.

A few key tidbits:

"Since the beginning of the economic recovery in November 2001, employment in housing and housing-related industries has accounted for 43% of the increase in private-sector payrolls, according to Asha Bangalore, an economist for Northern Trust Corp"

"What is not debatable is whether the rate of home equity extraction will revert to the mean rate of about zero, from the current rate of more than $250 billion annually. It will."

What's most disturbing is his chart of home equity extraction, obtained from Northern Trust. It shows that today's bubble is about 10 times bigger than the last bubble in the mid-1980s.


Jack Krupansky said...

Are we now in the most "persistent housing bubble" (PHB) in recorded history?

How many months old is the current PHB?

Any estimate of the "closing" date for this PHB?

Are any of the sports "book" web sites offering odds for various "closing" dates for this PHB?

I'm always amused by economists who think that they can deterministically forecast the future based on "historical" economic patterns. They *never* learn.

Nobody, including Fed Chairman Greenspan and his most astute supporters and detractors have the foggiest clue as to the trends of demographics (including birth rates and immigration) and new business formation over the coming years and decades. Without that data, any attempt to forecast future housing demand, supply, or prices is moot.

Long live the so-called "Housing Bubble". Don't give up hope yet, Virginia.

I do agree that the "home equity extraction" process will have to adjust, but in an unpredictable manner. But, I see this as distinct from the housing bubble, per se. There is a loose connection, but it's not a tight one.

-- Jack Krupansky

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