Tuesday, September 12, 2006

No Housing Bubble?

Interesting article stating that there is no Housing Bubble. Interesting in that it is based on a lot of false premises. Some of the key arguments:
"The greatest pain will be felt by the biggest speculators and the most overzealous people participating in unorthodox loan programs."

"real estate is a finite resource."

"There is a need for more housing, period!"
I don't know if I agree. It's true, the speculators and bad credit loans will get pinched. But I look at them like the canaries in the coal mine. It's not that they will get hit WORSE than anyone else. It's just that they will get hit FIRST. And the wave that takes them out will by no means stop after it hits them. It will keep rolling on.

Consider this statement about US economic growth over the past few years:
Consumer spending and residential construction have accounted for 90 percent of the total growth in the American GDP over the last four years, and more than 40 percent of all private-sector jobs created since 2001 have been in housing-related sectors, including construction and mortgage brokering.
You can't attribute that kind of growth to a few speculators and mortgage brokers. Housing has been driving this train for a while now, and when it stops... or even slows down... it is going to hurt. Consider recent reports on how residential home builders are shedding employees:
U.S. homebuilders and residential specialty trade employers cut 21,200 jobs in May, June and July, usually the peak building months, according to the most recent preliminary numbers from the Labor Department. The statistics, adjusted for seasonal variations, also showed a significant job loss in March.
They aren't the only ones. Think about how many new realtors have been spawned in the past few years. Or the number of mortgage brokers. Or the number of lending products. The housing market is part of a vast ecosystem that has created a great deal of wealth in this country in the past few years. And when it tanks, believing that only the people on the outermost fringes will get hurt could be a fatal mistake.