Reading about the housing bubble…
August 25th, 2006Sounds like pretty bad stuff…From what I gather, the only thing that anyone can do is President Bush can immediately rescind his tax cuts to the rich and stop wasting money overseas on his military ‘adventures’. Reducing the deficit would temper a crash.
Read:
By other measures, too, the market is badly bloated. One index of housing inflation is the difference between house prices and rents. In a healthy market, driven by demand, rents and sale prices ought to track roughly together. But while sale prices have soared, rents have stayed flat; and in some of the most overheated markets, like San Francisco and Seattle, they have actually been declining. Such a gap, the economist and New York Times columnist Paul Krugman has written, suggests “that people are now buying houses for speculation rather than merely for shelter,” evidence that he called a “compelling case” for a housing bubble. “Within the next year or so,” The Economist argued in a May 2003 editorial, these regional “bubbles are likely to burst, leading to falls in average real home prices of 15-20 percent” across America. And, of course, in the most heated markets the drop is likely to be steeper yet.
When housing bubbles burst, they can hurt more than their sector of the economy. Studies have shown that they exercise twice the effect on consumer spending as comparable declines in stock prices. So, a 20 percent drop in housing prices would have the same, shriveling effect on the economy as a 40 percent crash in the stock market. When investors lose value in their houses, many of them pull money out of other investments, like stocks. Then, too, jobs in construction, real estate, and other fields that depend on new home sales die off.
What can Alan Greenspan or anyone else do about this? The answer is, not much. Prices are so stratospheric that even modest hikes in long-term interest rates could burst the bubble. And with federal deficits soaking up so much capital, interest rates are likely to rise as the economy heats up and demand for capital increases. Of course, Greenspan could argue for rescinding some of President Bush’s tax cuts, which he’s long defended, to bring down the deficit. But even that probably won’t forestall a collapse in home prices.
From : http://www.washingtonmonthly.com/features/2004/0404.wallace-wells.html
Given the lateness of the hour, and the near-inevitability of the coming crash, there’s really only one thing left for concerned citizens to do. Start assigning blame.
