Doug Henwood wrote:
> Win $1000!!!!!!
>
> Why Is the Run-up in Housing Prices Not a Bubble?
>
> There is no precedent for the nationwide run-up in home prices over
> the last eight years -- 35 percentage points in excess of inflation.
> Neither the great boom of the sixties, nor the demographic surge
> created by the baby boomers forming their own households in the
> seventies and eighties, led to any substantial increase in home
> prices, adjusting for overall inflation.
>
> Economists who claim that that there is no housing bubble - that the
> run-up is explained by fundamentals - cite several factors:
>
> 1) increasing population due to immigration,
> 2) limited supplies of urban land
> 3) environmental restrictions on building
> 4) growing incomes of homebuyers
>
> The problem with these explanations is that none of them are new to
> the bubble period - if these factors explain the current run-up in
> home prices, then they should have also led to rising real home
> prices in prior decades, when many of the factors (e.g. rising
> incomes) would have played a larger role in pushing up home prices.
> Furthermore, rental prices have not kept pace with home prices. The
> rate of inflation in rental prices is now slowing, and in some bubble
> areas (e.g. San Francisco and Seattle) rental prices are actually
> falling. No one has yet produced a remotely plausible explanation of
> how fundamental factors can lead to a run-up in home sale prices, but
> not in rental prices.
>
> Bubbles inevitably burst, and the cost of the bursting of the housing
> bubble, like the cost of the bursting of the stock bubble, will be
> enormous. It will destroy much of the savings of tens of millions of
> families and almost certainly throw the economy into a second
> recession.
>
> While it took nothing more than simple arithmetic to recognize the
> existence of the stock bubble in 1998-2000
> [<http://www.cepr.net/stock market/stock_returns_for_dummies.htm>],
> virtually all of the nation's leading economists ignored the stock
> bubble. The nation's top policy makers designed economic policy as
> though the bubble did not exist and came up with implausible stories
> to explain the unprecedented surge in stock prices. [Footnote: Alan
> Greenspan actually testified to Congress in January of 2001 that he
> was concerned that the budget surpluses were too large and therefore
> a tax cut would be desirable to keep the national debt from being
> paid off too quickly. If these comments were sincere, then he must
> not have seen the imminent market crash and resulting recession.]
> This failure led millions to lose their retirement savings and was
> the immediate cause of the 2001 recession. They seem determined to
> repeat this mistake with the housing bubble.
>
> This is your chance to show that the experts are right - that the
> economy does not face a dangerous housing bubble. Send your essay
> (absolute 750 word limit) on why there is no housing bubble to the
> Center for Economic and Policy Research (georges at cepr.net). The
> author of the most convincing essay will receive $1000. (The best
> essay will receive the prize, even if none of the entries are very
> persuasive). The winning essay will also be posted on the Center for
> Economic and Policy Research's website, along with a refutation of
> its argument. The deadline for the contest is March 31, 2004. The
> winning essay will posted on April 6, 2004.
>
> 1621 Connecticut Ave., NW, Suite 500 Washington, DC 20009
> Tel: 202-293-5380 | Fax: 202-588-1356 | www.cepr.net | cepr at cepr.net
> ___________________________________
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--
Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901