New Housing Bubble Forming?
The notion of another housing bubble on the horizon seems utterly preposterous, given the events of the past six years. But is it?
Noted supply-side economics architect and former Reagan-era Office of Management and Budget director David Stockman believes the signs are out there. “We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” he said an a Daily Ticker interview.
Stockman believes that artificially low interest rates and speculation in the hardest-hit markets are driving up overall prices in an unsustainable manner. “It’s happening in the most speculative sub-prime markets, where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade.“ Stockman predicted, “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”
He summed it up by declaring ominously, “I would say we have a housing bubble — again.”
What if the Market Reverts to Further Declines in 2013?
We’ve discussed the viewpoints of both a sustainable recovery and the potential for an unhealthy bubble. What about the view that 2012’s increases were merely a blip? Professor Robert Schiller worries that 2012 could be just like 2009, when indications of a rebound were at hand, but turned out to be illusory. “It’s a good housing market in the sense that mortgage rates are very low and prices have come down to normal levels, so yes, it’s a good time to buy if nothing bad happens,” he said. “But it’s also a very bad housing market in that most of the mortgages are being supported by the government, and we have the Fed and this buying program. It’s a very abnormal market. There’s a lot of uncertainty going forward.”
Regarding a resumption of housing price deflation, he opined, “It could go on, that’s my worry.”
2013’s Housing Market So Far
According to Zillow, real estate values soared by 6.2% in January, as compared to one year earlier. Rents are up 4.2%, and 78 metropolitan areas in the country are forecast to increase by at least 3% this year.
That is, unless David Stockman is right, in which case values could soar as a new bubble expands. Or if Dr. Schiller is correct, further declines, possibly sharp ones. Welcome to real estate in the post-Great Recession era.
Chandra, Shobhana and Smialek, Jeanna. Price Gains Signal U.S. Housing to Boost Growth: Economy. (2013). Bloomberg. Accessed on February 27, 2013.
Hamilton, Scott. Schiller Says U.S. Housing Market May Drop Further: Tom Keene. (2013). Bloomberg. Accessed on February 27, 2013.
Lyster, Lauren. This Is Housing Bubble 2.0: David Stockman. (2013). Yahoo. Accessed on February 27, 2013.
Young, Angelo. January 2013 US Home Prices: Zillow Says They’re Up For 15th Month Straight, A Rate Of Growth Unseen Since The Run-Up To 2006 Housing Bubble. (2013). International Business Times. Accessed on February 27, 2013.
Humphries, Stan. As 2013 Looms, U.S. Housing Market Completes 13th Straight Month of Home Value Appreciation. (2012). Zillow. Accessed on February 27, 2013.
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