The Slowdown in the Housing Market is a Good Thing

Print
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.