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Posted by on Sep 12, 2018 in Bubble Talk, Jim's Take on the Market | 5 comments | Print Print

Ten Years After The Bubble

For those who study our housing bubble history, here’s a report by Dean Baker, a senior economist at the Center for Economic and Policy Research:

Link to his 31-page report

An excerpt:

There is a very similar story with the risk of a housing bubble.

Real house prices nationwide are again considerably above their trend levels, although in real terms they are still 10–20 percent below their bubble peaks. However, unlike the bubble years, high house prices do not appear to be driving the economy. Residential investment is actually still below its long-term trend measured as a share of GDP. As noted with reference to the stock bubble, consumption is at moderate levels relative to disposable income, indicating a limited housing wealth effect.

Furthermore, this run-up in house prices does appear to be driven largely by the fundamentals of the market. Rents have been substantially outpacing the overall rate of inflation, especially in the markets with the most rapid increases in house prices, like Seattle and San Francisco. Also, vacancy rates have fallen sharply from the peaks reached in the recession, and are low in markets seeing rapid price rises.

There are some causes for concern in the current housing market. In particular, the bottom third of the housing market in several major cities is seeing the most rapid rate of price appreciation.

This raises the risk that many moderate-income homeowners may be buying into bubble-inflated markets, as happened in 2002–2007. That is potentially very bad news for these homeowners who may see their life’s savings disappear quickly if house prices fall 15 to 30 percent. That will not lead to a financial crisis since there is not enough money at stake in these mortgages (most of which are backed by either Fannie Mae, Freddie Mac, or the FHA), but it would be an unfortunate loss to these new homeowners.

Link to his 31-page report

5 Comments

  1. I think home buyers need to internalize a new economic concept:

    The Trump Factor

    https://www.washingtonpost.com/business/2018/09/12/middle-class-income-hit-an-all-time-high-last-year-us-census-says/

    First lesson to learn in life: Nothing Succeeds Like Success. It’s like having a super power, and intelligent people know it when they see it. Superman doesn’t fly because a gust of air luckily happened to sweep under him at the right time, taking him where he wanted to go. He flies because he’s goddam Superman!

    It’s like an unsolvable calculus problem for many people. But that takes us to the next lesson: Just because it doesn’t feel right, doesn’t make it not so.

    Get good help, do your due diligence, and buy the house you love and can afford.




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  2. Respectfully, I’d retort with a qualified “garbage in, garbage out.” When data becomes politicized, it becomes an effort of cheering your team, and jeering the other. Personally, I’m more comfortable with data from a declared team cheering for themselves, than data from a supposed disinterested onlooker, posting skewed data as objective. The data is still skewed, but at least I know what I’m working with.

    These days, it helps to be on the ground, amongst those being measured. The “workin’ Joe’s that I know have more work than they know what to do with, and decent, but not always stellar wages.

    Essentially, you don’t need a weatherman to know which way the wind blows.

    Example of chart politics skewing everything attached to it.

    https://nypost.com/2018/09/11/labor-departments-seasonal-job-rejiggering-doesnt-compute/




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  3. That article from NYPOST is just conservatives being obtuse, again. August 2016 and August 2017 had FOUR (4) Fridays. August 2018 had FIVE (5) Fridays. It is likely that the August jobs report is actually for the workweeks which conclude in August, thus the larger seasonal adjustment makes perfect sense despite the NYPOST author’s inability to understand the reason.

    The bigger lesson is that monthly numbers have a fair amount of variation and it is better to look at the trend over time, as any of the mainstream media will tell you if you listen to them.




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  4. “That article from NYPOST is just conservatives being obtuse, again.”

    Interesting math skills. Too complex for me, so I’ll take your say so. After all, you are “name.” Asserting your identity with that kind of confidence can only be had by the hearty approbation of your peers for your keen insight. That said, you better feed your cats, or you risk losing your core audience.

    Do be a chap, and send my regards to Cramer, old sport. I do miss his wit, on cloudy days.

    Your Friend,
    Daytrip




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