re: Beginning of the End of Housing Bubble? – Dan Gilmor blog post
I doubt we are at the end of the bubble. However, financial bubbles are very difficult to time. My guess is the bubble will continue for over a year for most, if not all locations in the USA. And unless the bubble continues and prices reach levels much higher than they are now, the end of the bubble will not be dramatic decline of prices (say an drop in prices of over 25%) in most locations.
Manhattan (with historically very volatile prices) and certain other locations will likely have dramatic declines. But overall the real estate market will slow down (fewer sales) greatly and may experience say a 5 year period where prices decline slightly (or increase slightly). Real Estate normally does not behave the same way the stock market does when a bubble breaks, but we will see what actually happens.
The risk of stagflation, while real, is small, I believe. The huge trade deficit, large unfunded liabilities (Social Security) and huge federal budget deficients are likely to cause problems. However I believe these problems will more likely result in long term slow degradation of the standard of living in the USA instead of a dramatic break of the sort that could result in stagflation.
The decrease in the standard of living due to these forces could well be masked by other forces that increase the standard of living. So the inevitable cost of us now living beyond our means (passing the bills on to our children and grandchildren) can be ignored fairly easily. It is not a good approach but it is likely the one we will continue to practice. A recession is much more likely than stagflation.
Real Estate articles:
- Some Economists Warn of Housing Bubble by Daniela Deane Washington Post
- Are you living in a bubble? – like most opinions I wouldn’t take those expressed in this article as anything other than an opinion, but as such, it provides some interesting estimates.
- More real estate articles
Comments
7 Comments so far
In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened…
I do not believe we will have a huge decline in most housing markets see: Housing and the Economy. Still the article below is packed with great information. Definitely worth reading…
so far there has been no “bust.” As I mentioned previously I did not, and do not, see a “bursting of the real estate bubble” overall…
Post from 2004 on the real estate bubble worries then – again prices would have to fall a great deal to fall below the prices in 2004 (possible but not very likely to happen in the coming years). The real estate problems are significant and pose a danger to the economy (they certainly are already decreasing economic growth) however that is much different than a crash in housing prices…
The biggest factor for the depth of the pricing declines is going to be how many houses are forced into foreclosure (which is unfortunately possibly going to be high due to adjustable rate mortgages being adjusted up and requiring higher mortgage payments)…
[...] market demands in a falling market. Therefore when prices should fall (to find buyers) instead the sales decrease as buyers don’t decrease prices to a level buyers are willing to pay. Be It Ever So Illogical: Homeowners Who Won’t Cut the [...]
“With today’s rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan…”