Bursting the Bubble burst?
Posted on January 18, 2006 - Filed Under Rant |
I hate media coverage. I just do.
If it bleeds, it leads.
Yet in obscure postings, I see more and more economists, saying that a bubble burst is unlikely but everyone is predicting a cooling off period. Some areas are overpriced, yes. But for the most part, people thinking that home values are going to be halved because of a burst are smoking crack.
If you carefully read these articles, there are always statements of "if this happens" followed by "this could happen" and then ended with "which would probably trigger" . . .
Well I’ve finally found a major publication that has picked up on this. Business Week printed an article in it’s January 2nd issue, about this very topic.
If you have an account, you can click read the article. If you don’t, you can sign up for a free account. Or if you trust me, you can read the snippet below. And before I get bombarded with emails, saying I cut out only what I wanted, the article consists of 6 areas. Only one applied to real estate. The others deal with the overall economy, inflation, foreign economies and stocks. But as I said before, you can sign up for a free account and read the article yourself.
3. The housing bubble: Slow leak or pop?
The
view of most economists, including Fed Chairman Alan Greenspan, is that
a national home-price bust is highly unlikely. Clearly, many local
markets, mainly on the coasts, are overvalued and will face price
declines as interest rates rise.Still, housing presents the
Fed with a delicate balancing act. Rising home values and the cash
consumers have extracted from their home equity via refinancing and
home-equity loans have fueled both consumer spending and the economy.
So the less housing slows, the stronger the economy, and the greater
the need for the Fed to raise rates. But overtightening policy could
severely damage housing, and possibly the overall economy.
Where do rising mortgage rates fit in? They would have to increase far
more than expected to hammer housing. In the past, 30-year fixed rates
have approached 8% before monthly payments began to disqualify large
numbers of potential buyers. But there are new risks now: The rate
level could be lower because of higher home prices. Also, JPMorgan
Chase & Co. estimates that risky
subprime loans make up close to 9% of mortgage debt, large enough to
make a downturn worse if these loans begin to fail in large numbers. A
high concentration of these loans makes California especially
vulnerable.- Business Week, December 26, 2005 - January 2, 2006 Authors: James C Cooper and Kathleen Madigan.
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http://www.bobbruss.com/about.htm
Bob Buss writes a colume for the Press_Telegram every Sunday and Monday and he has a web-site. I read it every week. He has a variety of questions. They are interesting and very informative. And he doesn’t pull punches when he answers. Says it like it is.
Check him out.