Alan Greenspan, seemingly in response to an IMF warning on a possible UK housing bubble, arrerts that the U.S. is not facing a similar bubble. As CBS MarketWatch quotes his speech, “It is, of course, possible for home prices to fall as they did in a couple of quarters in 1990 [the last time the U.S. economy was in recession]. But any analogy to stock-market pricing behavior and bubbles is a rather large stretch.”
Despite my limited knowledge of the matter, this seems to make sense - after all, both new and existing housing stock is being used. Still, it’s not hard to feel like prices are stratospheric in the Boston area. Of course, here the problem is that demand for Boston and suburban housing stock (which are both limited by legal and geographic obstacles) is rising much faster than median income. The only respite in the market seems to be the second cities like Lawrence, Fitchburg or Fall River, or maybe the working class suburbs like Everett. I don’t see any political solutions coming soon, so I can only hope that the market adjustment comes without too much pain (severe recession or futher impoverishment of the city’s poor).
And speaking of unsustainable bubbles, the Economist has a note today about deficits: “Mr Bush’s relaxed attitude to large fiscal deficits is matched by a similar lack of concern about America’s giant current-account deficit. At around 5% of GDP, this is now, in the opinion of many economists, unsustainably large. The issue for them is not whether it comes down but whether it does so gradually or suddenly. A sudden fall in the value of the dollar, the usual way such deficits are reduced or eliminated, could rattle economies around the world.” It could be that the potential collapses in the housing-credit or the currency markets won’t materialize or that their timing won’t be disasterous. But the possibility of their piling onto a recessive economy should make more people worried.
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