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Home Publications Blogs Beat the Press The Slowdown in the Housing Market is a Good Thing

The Slowdown in the Housing Market is a Good Thing

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Wednesday, 23 October 2013 04:37

Much recent housing data suggest that the jump in mortgage interest rates following Ben Bernanke's taper talk in June had the effect of curbing demand in the market. This slowing is generally viewed as unfortunate in reporting on the economy, as in this Post piece. In fact, house prices were growing at an unsustainable rate, with the nationwide rate of growth in double digits and many markets seeing annual increases of 20-30 percent.

If this pace of growth had continued for much longer, it would have pushed prices back into bubble territory. This means that homebuyers would likely take substantial losses when they sell their homes and many people making plans for retirement would discover that they had considerably less equity than they expected.

It is difficult to see how anyone can view this as an acceptable way to boost the economy. Bubbles inevitably burst and if a new bubble were to develop in the housing market, its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble.

Comments (7)Add Comment
Last Call for Recovery: Living in the Short Run
written by Last Mover, October 23, 2013 6:25

Better to endure the slings and arrows of another asset bubble in the short run than more unemployment and low wages for the long run.

Consider it a form of unemployment compensation, a loan subsidized by the asset itself. Find an asset spiraling towards a bubble and buy it to privatize yourself America.

It's your last chance to become a member of the risk-free plutocracy should it bust into a socialized loss. Otherwise the untaxed gains are yours for life.
...
written by skeptonomist, October 23, 2013 10:08
The level of mortgage debt seems to have declined continuously since the peak in 2008:

http://research.stlouisfed.org/fred2/series/HHMSDODNS

No incipient bubble is indicated here. This may be a more reliable indicator than sales figures, as pertaining to the danger of financial collapse as in 2008.
...
written by Kat, October 23, 2013 10:37
No incipient bubble is indicated here. This may be a more reliable indicator than sales figures, as pertaining to the danger of financial collapse as in 2008.

Why would that be a more reliable indicator than sales figures? (Actually, it is more correct to say growth in home prices as per the post.)
...
written by skeptonomist, October 23, 2013 12:20
Actually prices still appear to be rising, both according the FHFA

http://wallstcheatsheet.com/stocks/homes-prices-gain-for-the-18th-consecutive-month.html/?ref=YF

and Case-Shiller indexes. Housing starts dropped off starting in April. Lots of different indicators with some different time lags as Dean has discussed, but no real cause to be declaring either a boom/bubble or collapse yet.
Merely talking of tapering
written by Lord, October 23, 2013 1:34
is sufficient for Fed control. If they actually do it the next recession may be upon us.
Maybe they think it's bad because they're druggies & drunks!
written by watermelonpunch, October 23, 2013 3:17

Maybe the reason these things are presented thus, is because the financial sector and news industry has too many people who are addicted to various legal & illegal mind altering substances.

If they're aware, they think that crashes, downturns, feeling ill, having their mood & productivity go south suddenly, throwing up in their waste paper baskets, etc, are just an unavoidable & acceptable price they must pay for "the good times" they get from being "high".

If they're in denial, of course, they think that, crashes, downturns, throwing up in their workplace lav, or feeling like shit, are wholly unconnected to getting all hopped up on goofballs.

I say we call for mandatory drug screenings.
CEOs of banks and newspaper opinion columnists should be the first forced to piss in those cups, because many of those people seem the most like they've been in their cups.
On "Bubbles" & Other Childrens Games.
written by Perplexed, October 23, 2013 4:15
-"...its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble."

Are you suggesting the counterfeit mortgage fraud is still going on (after all, the same fraudsters are still running the same criminal enterprises under the same incentive systems and exemptions from criminal prosecution) or that it played no role in the size and had no effect on the "sort of pain we are experiencing as a result of the collapse of the last bubble"?

Is the use of metaphors of children's games and terms like "bubbles," "sticky wages," and "sticky prices" always the "tell" for when economists are hiding the real truth of what's occurring below the surface of "approved" explanations?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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