FacebookTwitterGoogle+RedditEmail

Bubblicious

by SETH SANDRONSKY

Many eyes are on the U.S. real estate market. “During the past five years, home prices have risen at an annual rate of 9.2 percent,” according to the 2006 Economic Report of the President released on February 13. Was this growth normal? We need the historical context of home price increases to answer this question.

The media coverage of the report sidestepped the historical context altogether. For the relevant historical data on recent home prices, we turn to economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC.

“Through the post-war period 1950 to 1995, house prices grew at approximately the same rate as the prices of other goods and services,” Baker wrote last July.

The Consumer Price Index of goods and services rose at an annual rate of 3.4 percent in 2005, a five-year high, according to the U.S. Bureau of Labor Statistics. Between 2001 and 2005, the CPI annual rate, on average, was 2.56 percent. Put the aforementioned annual house price growth rate of 9.2% in this context. House prices rose at more than three and a half times the rate of consumer price increases.

Some economists have a technical term for the U.S. real estate market today: a bubble. They are part of — not apart from — the national economy.

Recall the stock market bubble of the 1990s. Share prices climbed to record highs, cheered on by overheated rhetoric of a “new” economy. An exception to cheerleading came from Federal Reserve Chairman Alan Greenspan, who mentioned concern about investors’ “irrational exuberance” — but only on page eight during a 10-page speech. Eventually, the bubble popped, wiping out paper gains.

The media having faded out the memory of the stock market bubble and its aftermath, tens of thousands of people across the country are buying overpriced new homes. Many first-time homebuyers are scraping by to pay their monthly mortgages. For such homebuyers, losing a job or accepting a lower-paying job after unemployment will make it tough — sometimes impossible — to make ends meet. Corporate downsizing and outsourcing are now even more menacing than before.

The rapid growth of risky mortgages — subprime, no-down-payment, low-documentation, interest-only, “payment-option,” and so on — in recent years is another danger signal.

SOURCE: Federal Deposit Insurance Corporation, “Economic Conditions and Emerging Risks in Banking: A Report to the FDIC Board of Directors,” 1 November 2005

Mortgage payments that looked manageable in a period of relatively low interest rates and ever rising house prices can easily overwhelm the borrowers of risky mortgages when interest rates soar or house prices plummet.

Other homeowners have used the increasing market value of their homes to take out new loans. For some, second mortgages expand their debt. They are borrowing and consuming with the expectation of a future rise in their home prices. Such spending based on lending instead of rising real wages (what people’s pay can actually buy) will cool when the hot housing market loses heat.

 

SOURCE: “Economic Report of the President,” February 2006, p. 30

Building of some 2 million new homes began in 2005. Some 25 percent of these new starts were bought by real estate speculators with expectations of selling at higher prices down the road, according to Baker of the CEPR.

The February 13 White House report predicted a soft — rather than hard — landing: “A gradual slowing of homebuilding appears more likely than a sharp drop because the elevated level of house prices will sustain homebuilding as a profitable enterprise for some time.”

The soft-landing scenario may or may not come true. Like bubbles of the past, uncertainty rules the future of the U.S. market for real estate. It cannot be otherwise, with so many actors and factors involved. Nobody — not even the Fed — is really in control.

SETH SANDRONSKY is a member of Sacramento Area Peace Action and a co-editor of Because People Matter, Sacramento’s progressive paper. He can be reached at ssandron@hotmail.com.

 

 

 

 

 

Seth Sandronsky is a Sacramento journalist and member of the freelancers unit of the Pacific Media Workers Guild. Emailsethsandronsky@gmail.com

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

December 08, 2016
John W. Whitehead
Power to the People: John Lennon’s Legacy Lives On
Mike Whitney
Rolling Back the Empire: Washington’s Proxy-Army Faces Decisive Defeat in Aleppo
Ellen Brown
“We’ll Look at Everything:” More Thoughts on Trump’s $1 Trillion Infrastructure Plan
John Stauber
The Rise and Fall of Obamacare: Will the Inside Story Ever be Told?
Ted Rall
Ameri-Splaining
Michael J. Sainato
Mainstream Media Continues Absolving Itself From Clinton, Trump Election Failures
Ralph Nader – Mark Green
Divest or Face Impeachment: an Open Letter to Donald Trump
Gareth Porter
US Airstrikes on Syrian Troops: Report Data Undermine Claim of “Mistake”
Martha Burke
What Trumponomics Means for Women
Ramzy Baroud
Fatah, Hold Your Applause: Palestinian Body Politic Rotten to the Core
Steve Horn
Jeff Sessions, Trump’s Attorney General Pick, Introduced First Bill Exempting Fracking from Drinking Water Rules
Joe Ware
The Big Shift: Why Banks Need to Stop Investing Our Money Into Fossil Fuels
Juliana Barnet
On the Ground at Standing Rock
Franklin Lamb
Aleppo Update: An Inspiring Return to the Bombed Out National Museum
Steve Kelly
Hidden Harmony: on the Perfection of Forests
December 07, 2016
Michael Schwalbe
What We Talk About When We Talk About Class
Karl Grossman
The Next Frontier: Trump and Space Weapons
Kenneth Surin
On Being Caught Speeding in Rural America
Chris Floyd
In Like Flynn: Blowback for Filth-Peddling Fascists
Serge Halimi
Trump, the Know-Nothing Victor
Paul DeRienzo
Flynn Flam: Neocon Ex-General to Be Trump’s National Security Advisor
Binoy Kampmark
Troubled Waters: Trump, Taiwan and Beijing
Tom Clifford
Trump and China: a Note From Beijing
Arnold August
Fidel’s Legacy to the World on Theory and Practice
Dave Lindorff
Is Trump’s Idea To Fix a ‘Rigged System’ by Appointing Crooks Who’ve Played It?
John Kirk
Cuba After Fidel
Jess Guh
Repeal of Affordable Care Act is Politics Playing with the Wellbeing of Americans
Eric Sommer
Team Trump: a Government of Generals and Billionaires
Lawrence Davidson
U.S. Reactions to the Death of Fidel Castro
John Garvey - Noel Ignatiev
Abolitionism: a Study Guide
Clancy Sigal
Caution: Conspiracy Theory Ahead!
December 06, 2016
Anthony DiMaggio
Post-Fact Politics: Reviewing the History of Fake News and Propaganda
Richard Moser
Standing Rock: Challenge to the Establishment, School for the Social Movements
Behrooz Ghamari Tabrizi
Warmongering 99 – Common Sense 0: the Senate’s Unanimous Renewal of Iran Sanctions Act
Norman Solomon
Media Complicity is Key to Blacklisting Websites
Michael J. Sainato
Elizabeth Warren’s Shameful Exploitation of Standing Rock Victory
David Rosen
State Power and Terror: From Wounded Knee to Standing Rock
Kim Ives
Deconstructing Another Right-Wing Victory in Haiti
Nile Bowie
South Korea’s Presidency On A Knife-Edge
Mateo Pimentel
Some Notes and a Song for Standing Rock
CJ Hopkins
Manufacturing Normality
Bill Fletcher Jr – Bob Wing
Fighting Back Against the White Revolt of 2016
Peter Lee
Is America Ready for a War on White Privilege?
Pepe Escobar
The Rules of the (Trump) Game
W. T. Whitney
No Peace Yet in Colombia Despite War’s End
FacebookTwitterGoogle+RedditEmail