Saturday, May 29, 2004

Housing bubble?

Kevin Drum comments on the large drop in housing starts in May, convinced that there’s a nationwide housing bubble. I heard the same slant on National Public Radio’s business show Marketplace. The Economist magazine did a story several months ago arguing an international housing bubble exists, especially in the US, and we’re going to follow Japan’s example of recession and stagnation when it bursts.

I think they’re probably right, and we’ve been in a bubble for a long time. I’m not sure what to do about it though, as a nation or as individuals. Greenspan has apparently argued he was right not to try and pop the stock-market bubble, because the resulting recession when it burst “naturally” wasn’t too severe. I find that hard to accept – maybe the recession would have been even less severe, or merely a slowdown, absent the bubble. Anyway I think as soon as enough people acknowledge a bubble exists, then it will burst, and that’s not too far away. It’s a good time to assign blame though – I give Bush, Greenspan, and the Republican Congress the lion share of responsibility, although the Democrats should get some blame for not even warning about it now, or doing anything about it back in the 1990s when they were in charge. If any prominent person has done anything about this problem, I’m not aware of it.

As an individual, I’m not sure what to do – why am I thinking of buying a car? A severe recession would quite possibly kill my job. On the other hand, I waited for years for the high-tech bubble to burst; it’s a difficult thing to time. I wouldn’t buy a house now, though.

The comment section on Kevin’s post has some interesting stuff, except by some idiot named “Brian”. Kevin’s site also has a search function, so if you look up “housing bubble” you’ll find a lot more information he’s posted.

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