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August 25, 2005

There is No Bubble

Dean Foust

While most commentators these days insist there is a housing bubble, there's at least one economist, Jude Wanniski, who is willing to take the other side of the argument. For those of you who haven't been introduced before to Wanniski, he's a conservative economist who was back in the 1980s an editorial page writer for The Wall Street Journal, and he was one of the original proponents of supply side economics (remember Arthur Laffer and the Laffer Curve? Wanniski was present at the revolution... But I'm dating myself) Wanniski argues that the housing boom simply reflects the fact that Americans are getting wealthier.

02:45 PM

Bubbles

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Another day, another dollar, each day deeper in debt, selling my soul to the company store. Something like that.

Posted by: Lord at August 25, 2005 07:17 PM

Finally, a major publication wrote about Harvard's housing study which puts all this bubble talk in it's proper perspective. In a Wall Street Journal article entitled, " What's Eating Home-Builder Stocks" by Scott Patterson he states:

In its recent report, "The State of the Nation's Housing: 2005," researchers at Harvard University's Joint Center for Housing Studies said new-home construction shows no sign of declining in the near future. Harvard's economists found that the inventory of new homes for sale today, measured against the pace of home sales, is near its lowest level ever.

"Given this small backlog, new-home sales would have to retreat by more than a third -- and stay there for a year or more -- to create anywhere near a buyer's market," the study said."

http://online.wsj.com/article/0,,SB112517651740524788,00-search.html?KEYWORDS=Scott+Patterson&COLLECTION=wsjie/archive

If you want to read the entire Harvard study or the Executive Summary, click:

http://www.jchs.harvard.edu/publications/markets/son2005/index.html

Posted by: Frank Pecarich at August 31, 2005 06:26 PM

when interest only mortgages are at 60% of total mortgages, I really dont think people are wealthier, dogs and cats are getting loans these days.

Posted by: Ken at September 1, 2005 01:12 AM

In California, Interest Only loans now represent MORE THAN two-thirds of all originations and the affordibility index has sunk below 17%. The last two times the affordibility index sunk that low there were major meltdowns in housing markets in the years following, however there has never been a previous instance in which the bubble has been combined with such low interest rates AND such a proliferation of hokey financing designed to get people who clearly cannot afford a home into a big mortgage. According to Data Quick, prices have recently begun dropping in the hottest zip codes despite a slight reduction in interest rates over the past few months. There is not only a real bubble in CA, but it's the largest bubble in history. Homeowners are far more leveraged than at any time in history, have more personal debt and less equity than before. The bubble will burst very soon and this will wipe out more perceived wealth in CA than the bursting of the NASDAQ bubble of 2000.

Posted by: DaveInCA at September 11, 2005 06:53 PM

Harvard study? Who funded the study? Do they have a vested interest?

http://www.jchs.harvard.edu/publications/markets/son2005/son2005_executive_summary.pdf

Posted by: robert at September 23, 2006 11:02 PM


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