Housing

Back in 2002, I compared housing to gold. The surge in home buying in the 2000s looked like the 1970s rush to buy gold. Like the current times, the 1970s were a time of great economic uncertainty, followed by the rapid inflation of prices in the 1980s. Regardless of the actual return on investment, many people bought gold as a hedge against financial and economic turmoil. When Americans bought houses in the 2000s, they believed homes would provide some of that same protection, in addition to being a place to live.  read more »

It is not yet clear whether we stand at the start of a long fiscal crisis or one that will pass relatively quickly, like most other post-World War II recessions. The full extent will only become obvious in the years to come. But if we want to avoid future deep financial meltdowns of this or even greater magnitude, we must address the root causes.

In my estimation two critical and related factors created the current crisis. First, profligate lending which allowed many people to buy overpriced properties that they could not, in reality, afford. Second, the existence of excessive land use regulation which helped drive prices up in many of the most impacted markets.  read more »

The Emergency Economic Stabilization Act of 2008 (we’ll call it the “Bail Out”) was signed into law on October 3rd. This, combined with the new reality in capital markets and current economic conditions, will result in some major shifts in the outlook for housing over the next few years. It is always possible that the federal government will try to do even more to fix what will be an agonizing housing problem over the next few years, but seems unlikely even Bernake, Paulson or their appointed successors will be able to change the basic story line.  read more »