Monday, August 08, 2005

Krugman: That Hissing Sound

Paul Krugman in today's NYTimes writes "This is the way the bubble ends: not with a pop, but with a hiss. Housing prices move much more slowly than stock prices. " This is certainly true. However, let us compare it to other housing bubbles. For a housing bubble, this has been an incredible speculative episode, and thus compared to other periods of housing price appreciation there is going to be a larger drop in prices. Perhaps a 'loud hiss' would be an appropriate term.

8 comments:

  1. Krugman has been saying for a long time the entire US economy is in a bubble- and that housing is in a bubble. Makes me laugh I read Richard Berner's Monday writing today (Stephen Roach must be away) And Berner is totally Bullish on the US saying that capital spending will be kicking in big soon, and that there will be strong growth all of 2006. Only at the end does he 'barely' mention that housing 'could slow things down a bit'........

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  2. I hope you are right. We live 75 miles west of DC and are considered a suburb. We have held off on buying because it is outrageous and just plain scary. We, as first time buyers can NOT afford $300,000 (and still not getting the house we really want).

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  3. Not sure about DC metro area, it maybe the exception bc of strong job growth in the area thanks to the fed govt. I think price are more likely to stagnate and stay roughly with inflation. ( I am not sure if DC area is a bubble market)

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  4. Richard Berner's views IMHO are garbage- there is a dangerous bubble, prices are simply too high in many places, including the DC area. Stephen Roach also of Morgan Stanley has more saavy then Berner, and much more respect, Roach is very bearish on housing and the economy (-Roach is Morgan Stanley's chief economist) The old concepts that strong job growth will protect the Washington area from a bubble or crash- is silly, there HAS NEVER been a runup in prices like this in American History. The BS that's its 'different this time' remind me of all the other ridiculous bubbles in History, where it 'was different this time'. Lets see if inventory continues to grow in the DC area- as I suspect it will. And lets see if prices rise or at best level off-Washington is vulnerable to a 20-30% correction if not more.

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  5. Anonymous 12:11, 3:15 P

    Yeah I know that Berner's comment were not as strong as Roach bearish comments but you must admit it is a change from his previous position. His position may occur.. There are two scenarios for this..Either it will go down a little(10-15%) then sidways for years or it will go down 30+% percent and cause a severe recession that alot of people can't remember or have forgot about... But let us not forget something will happen


    John in Cv

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  7. Housing prices *will* fall. How far is anyone's guess. 30% doesn't seem unreasonable.

    Anecdotally, I lived in an isolated town whose major employer was a navy base. When that base downsized after the end of the cold war, my modest starter home value fell about 20% within months, and took 8 years to recover the initial selling value.

    There is little more frightening and paralyzing than being several thousand dollars upside-down on a mortgage (it was a VA loan).

    The possibility of housing deflation and an economic downturn led by the housing/RE sector, complete with layoffs and home sales and foreclosures is frightening.

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  8. Krugman may be wrong in that the decline will be a 'hiss' it many sound like a wind rising slowly then develops in a sweeping swoosh.

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