HOUSING BUBBLE?….There’s a bunch of reasons to be jumpy about the economy. Paul Krugman thinks we may be headed for a liquidity trap. Income inequality is rising to historically dangerous levels. The stock market is still overvalued. Productivity is continuing to grow so fast that rising unemployment is inevitable unless GDP growth starts to break 3% again. The entire world economy is flat at the same time, something that hasn’t happened since 1929. Europe is handcuffed by their Growth and Stability Pact and a central bank that seems oddly unconcerned by increasing evidence of recession. And in the U.S., George Bush is obviously more interested in ideological tax cut games than he is in actually trying to address the problems of the economy.
Believe it or not, though, the thing that bothers me more than any of this is the housing market:
Defying predictions of a slowdown, nationwide home sales and prices surged in April as record low mortgage rates fueled a home buying boom and provided a much needed boost to a sagging economy.
….NAR President Cathy Whatle noted that mortgage rates have continued to fall since April to the lowest levels reported in more than 30 years.
Falling mortgage rates have indeed helped keep the housing market frothy, but they don’t have much farther to fall. Eventually, unless the economy picks up pretty smartly this year, the bubble is going to burst. And in an economy that’s fragile and already suffering from all the problems I mentioned above, another bubble burst is the last thing we need.
I sure hope I’m wrong about this.