FacebookTwitterGoogle+RedditEmail

Bubblicious

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.

 

 

 

 

 

More articles by:

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

January 15, 2019
Patrick Cockburn
Refugees Are in the English Channel Because of Western Interventions in the Middle East
Howard Lisnoff
The Faux Political System by the Numbers
Lawrence Davidson
Amos Oz and the Real Israel
John W. Whitehead
Beware the Emergency State
John Laforge
Loudmouths against Nuclear Lawlessness
Myles Hoenig
Labor in the Age of Trump
Jeff Cohen
Mainstream Media Bias on 2020 Democratic Race Already in High Gear
Dean Baker
Will Paying for Kidneys Reduce the Transplant Wait List?
George Ochenski
Trump’s Wall and the Montana Senate’s Theater of the Absurd
Binoy Kampmark
Dances of Disinformation: the Partisan Politics of the Integrity Initiative
Glenn Sacks
On the Picket Lines: Los Angeles Teachers Go On Strike for First Time in 30 Years
Jonah Raskin
Love in a Cold War Climate
Andrew Stewart
The Green New Deal Must be Centered on African American and Indigenous Workers to Differentiate Itself From the Democratic Party
January 14, 2019
Kenn Orphan
The Tears of Justin Trudeau
Julia Stein
California Needs a 10-Year Green New Deal
Dean Baker
Declining Birth Rates: Is the US in Danger of Running Out of People?
Robert Fisk
The US Media has Lost One of Its Sanest Voices on Military Matters
Vijay Prashad
5.5 Million Women Build Their Wall
Nicky Reid
Lessons From Rojava
Ted Rall
Here is the Progressive Agenda
Robert Koehler
A Green Future is One Without War
Gary Leupp
The Chickens Come Home to Roost….in Northern Syria
Glenn Sacks
LA Teachers’ Strike: “The Country Is Watching”
Sam Gordon
Who Are Northern Ireland’s Democratic Unionists?
Weekend Edition
January 11, 2019
Friday - Sunday
Richard Moser
Neoliberalism: Free Market Fundamentalism or Corporate Power?
Paul Street
Bordering on Fascism: Scholars Reflect on Dangerous Times
Joseph Majerle III – Matthew Stevenson
Who or What Brought Down Dag Hammarskjöld?
Jeffrey St. Clair - Joshua Frank
How Tre Arrow Became America’s Most Wanted Environmental “Terrorist”
Andrew Levine
Dealbreakers: The Democrats, Trump and His Wall
Jeffrey St. Clair
Roaming Charges: Que Syria, Syria
Dave Lindorff
A Potentially Tectonic Event Shakes up the Mumia Abu-Jamal Case
Nick Pemberton
There Are More Important Things Than The Truth
Brian Cloughley
How Trump’s Insults and Lies are Harming America
David Rosen
Sexual Predators in the Era of Trump
Tamara Pearson
Everything the Western Mainstream Media Outlets Get Wrong When Covering Poor Countries
Richard E. Rubenstein
Trump vs. the Anti-Trumps: It’s the System That Needs Changing Not Just the Personnel
Christopher Ketcham
A Walk in the Woods, Away from the Screens
Basav Sen
Democrats Failed Their First Big Test on Climate
Lauren Smith
Nicaragua – The Irony of the NICA Act Being Signed into Law by Trump
Joseph Natoli
Will Trumpism Outlive Trump?
Olivia Alperstein
The EPA Rule Change That Could Kill Thousands
Medea Benjamin – Alice Slater
The New Congress Needs to Create a Green Planet at Peace
Caoimhghin Ó Croidheáin
Cuba: Trump Turns the Vise
Ramzy Baroud
When Bolsonaro and Netanyahu Are ‘Brothers’: Why Brazil Should Shun the Israeli Model
Mitchell Zimmerman
Government by Extortion
FacebookTwitterGoogle+RedditEmail