Another Housing Bubble is Starting

[Beet]

Prices are now appreciating at the same rate as they were at the height of the bubble. This is the problem with Bernanke's QE forever plan...

[opebo]

This is great!

[Frodo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

[opebo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

[Frodo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't. 

[opebo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't. 

What, someone has to consume what you produce, unless you're planning on just throwing it into the ocean.

[Frodo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't. 

What, someone has to consume what you produce, unless you're planning on just throwing it into the ocean.

China will eventually transition to a more consumption-based economy. 

[LastVoter]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't. 

[Frodo]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't.  

You can't consume something unless someone is producing it.  Therefore economic growth is based upon both consumption as well as production.  Ours, for too long, was based upon consumption at the expense of production, which led to our recession.  

Not a difficult concept to grasp.  Therefore, Opebo is wrong -as usual.  

[LastVoter]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't.  

You can't consume something unless someone is producing it.  Therefore economic growth is based upon both consumption as well as production.  Ours, for too long, was based upon consumption at the expense of production, which led to our recession.  

Not a difficult concept to grasp.  Therefore, Opebo is wrong -as usual.  

Well obviously there needs to be stuff produced for consumption... But I don't think US manufacturing has any problems with that considering all the closed plants. Obviously both sides could be improved with proper government spending and publicly owned industry, respectively.

[True Federalist (진정한 연방 주의자)]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

Guys, all economic growth is dependent upon consumption.

No, it isn't. 

What, someone has to consume what you produce, unless you're planning on just throwing it into the ocean.

  That's what our war spending is for.

[opebo]

China will eventually transition to a more consumption-based economy. 

Fantastic solution, Frodo, but we can't wait 100 years.

What, someone has to consume what you produce, unless you're planning on just throwing it into the ocean.

  That's what our war spending is for.

Haha, of course!  But the point here is that the problem in the world today is lack of demand, not lack of capacity or production.

[memphis]

China will eventually transition to a more consumption-based economy. 

Fantastic solution, Frodo, but we can't wait 100 years.

What, someone has to consume what you produce, unless you're planning on just throwing it into the ocean.

  That's what our war spending is for.

Haha, of course!  But the point here is that the problem in the world today is lack of demand, not lack of capacity or production.

^^^^^
And we will continue to see lack of demand so long as Mitt Romney and just a few others possess all the capacity to "demand." The problem is not that the public doesn't want things. They just need more ability to make it happen.

[King]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

[DC Al Fine]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

Yeah sure, provided the demand is there to create it. The question is, does America really have enough demand to raise housing prices significantly?

[King]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

Yeah sure, provided the demand is there to create it. The question is, does America really have enough demand to raise housing prices significantly?

Well, if demand and prices are growing despite Dodd-Franks regulations against the mortgage market being in place, then... yes?

[bedstuy]

From 1996-2006, housing prices basically increased at a high rate while household income stagnated after 1999 or so.  It took ten years to get as out of whack as it did; the price bubble didn't just appear overnight.  Since then, the market crashed and we returned to sane home prices. 

Prices are starting to rise again, true.  But, this a fairly recent development.  Currently we're nowhere near the inflation adjusted home prices of 2006.  Maybe, if this trend continues we can worry about another housing bubble.  I don't see how it's a pressing problem at this point.

Also, we should expect some housing price inflation over time. 

[Warren 4 Secretary of Everything]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

Yeah sure, provided the demand is there to create it. The question is, does America really have enough demand to raise housing prices significantly?

Exactly. With the recovery from the Great Recession imminent, I believe America's demand will continue to rise significantly, and with it boost housing prices. Obama just needs to make sure the regulation is in place to protect against the techniques employed during the 2005-2007 housing boom and eventual bubble bust.

[bedstuy]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

You really can't separate out the bubble from the problems with structured finance and Wall Street.  The reason that mortgage backed securities were attractive was that the housing prices were going up.  People could buy a house they couldn't afford, wait for appreciation and then refinance.  For a period of time, credit-worthiness didn't really matter in the short-term.  But, that only works if the market is going up.

Dodd-Frank did a lot to improve the market in terms of regulating rating agencies and asset backed securities as well as bulking up regulations on the consumer side.  But, you have to trust that the SEC and CFTC are going to be able to regulate exotic structured finance. It seems like finance is always one step ahead, so I wouldn't be too confident that we've solved the issues that created the meltdown.  In the short-medium term, it's probably true that Wall street will learn from AIG, Bear and Lehman and not be as foolish as they were with CDSs, CDOs and RMBSs in general.

[fezzyfestoon]

Of course. America is a very simple beast that will readily and enthusiastically allow its handlers to return to the same poisonous trough time and again. Our collective economic thinking has been so restricted to think that what happens in our economy is natural and capitalism at its best. Booms and busts are created and we keep feeding into them without questioning them. And as long as people are led to believe that they are also benefiting and that the boom will never end, they'll keep jumping for joy every time they make a little imaginary money. Meanwhile the people fueling this make billions and continue to hoard it while demonizing those who want a healthy economy as anti-job commies. But we never learn...

[Beet]

I'd say erratic shifts in housing prices are an independent "bad" apart from the credit risk (e.g., finance) component. At the most basic level, housing is a requirement for living. Particularly owning a single-family house is both the best financial decision for a family that lives in the same metropolis for more than 15 years or so, and a virtual requirement to be accepted as truly middle class. Housing should be affordable.

Yes, it's true, that when interest rates come down, a person making $60k in salary can afford to borrow a much larger amount of money than when interest rates are higher based on monthly payment. However, the total amount of debt the person is in is higher. The payment may be the same but you are paying for it much longer than before. Hence, over the entire lifecycle, lower interest rates do not help homebuyers. In fact, it hurts them because the market reacts to the lower interest rate by adjusting up the price.

Since most non-homeowners have much less wealth than most homeowners, this is effectively a very large regressive tax or even a transfer of wealth from the poor to the rich. It is also a transfer of wealth from the young to the old. Given that we're already transferring wealth from the young to the old through the federal budget deficit to fund Social Security & Medicare, in the private sector when companies pay younger workers less so they can support legacy pension promises to older workers, and rising tuition costs in university, it's another body blow to the future independence of today's young people. The long term effect will be to further infantilize young people, who will continue to be dependent on their parents financially into adulthood or even live at home well into adulthood. Young people will be blamed as a "generation of slackers", but it's really the policies that baby boomers have enacted that has made these trends the logical response.

Of course homeowners who are 64% of households will feel good if housing prices are rising, and this will encourage them to spend and borrow more. However, it should be pointed out that unless these people are flipping houses, the price rise does not actually benefit them at all. The house one lives in does not automatically become 'better' just because it's said to be worth more. In fact the main practical effect may be a property tax increase.

Finally it should be noted that high housing prices are not an easily reversed policy, as we have seen. Once housing prices get to astronomical levels, no policymaker in the world has ever been able to lower it without causing massive damage. We should be especially wary of going down a path we cannot easily return from...

[DC Al Fine]

I'd say erratic shifts in housing prices are an independent "bad" apart from the credit risk (e.g., finance) component. At the most basic level, housing is a requirement for living. Particularly owning a single-family house is both the best financial decision for a family that lives in the same metropolis for more than 15 years or so, and a virtual requirement to be accepted as truly middle class. Housing should be affordable.

IIRC some Yale economist showed that over the long term, housing more or less tracks inflation. If you can save money by renting and invest the difference, you would be far better off.

That said, given people's saving abilities, forcing them to send a cheque for a fixed amount every month is probably a good idea.

[TeePee4Prez]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

[DC Al Fine]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

[Sbane]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.