Real Estate Bubble or Not?
Whether you view it as a housing price bubble about to break, or whether you believe that high home prices are here to stay, most will agree that the recent market has been one of the hottest ever.
According to Dave Seiders, chief economist for the National Association of Home Builders, the underlying fundamentals of the real-estate market look healthy, and there are no signs of a slowdown in sight. Even if interest rates rise, as he expects, price appreciation will merely slow down, and prices won’t decline on a national level. A bust, he argues, doesn’t always follow a boom.
Dean Baker couldn’t disagree more. The chief economist for the Center for Economic and Policy Research, a Washington, D.C.-based think tank, says the market is dangerously overextended. It’s a classic bubble, he says, and when it pops, home values could drop by up to 30%.
May 31st, 2005 at 2:57 pm
Al Greenspan has famously stated that he could not recognize a bubble while it was in progress. However, Eric J. Fry of The Daily Reckoning staff has noted that for the first time ever, lending to purchase real estate comprises more than half of all lending in the United States. Moreover, about 70% of all new real estate loans are interest-only and about half of them are adjustable rate.
None of the above sounds like solid investment or sound judgement. I say if it walks like a duck and talks like a duck, it must be a duck (or a bubble in this case).
There has never in all of recorded history been an example of where an excess did not revert to the mean sooner or later.