The ABCs of the Housing Bubble
Economist Dean Baker explains the basics of the housing bubble
Immediate Release: July
Erskine, 202-293-5380 x115
Washington, DC: A new
publication by the Center for Economic and Policy Research explains some of the
basic facts about the current housing market. “The Housing Bubble Fact
Sheet,” by economist Dean Baker, describes why the rise in housing prices
constitutes a housing bubble and what can be expected when it inevitably
Over the last 8 years, the
United States has seen an unprecedented rise in housing prices that has created
$5 trillion in bubble wealth. Like the late-1990s stock bubble, this run up in
home prices cannot be explained by the fundamentals of supply and demand. It is
a speculative bubble that will inevitably collapse and almost certainly throw
the economy into a recession when it does.
“Housing Bubble Fact Sheet” provides an overview of the housing market and
its implications for the economy:
regions of the U.S. have experienced a 60 percent increase in real home
prices, while the average for the country as a whole is 45 percent.
Historically, real home prices have not increased, as house prices have just
kept pace with the overall rate of inflation.
Given how far out of line house
prices have grown from fundamentals, there is no way to avoid enormous economic
damage when the bubble collapses. However, the sooner house prices drop, the
less damage there will be.
For access to the "Housing Bubble Fact Sheet," by Dean Baker, click here.