February 10, 2012
The Washington Post still seems to not have seen the housing bubble. A front page article refers to a housing “slump” and discusses the possibility that the states’ settlement on foreclosure practices will heal the housing market.
These sorts of comments imply that it is plausible that the housing market will somehow bounce back to its bubble levels of prices and construction. It isn’t.
The bubble led to house prices in many parts of the country that were completely out of line with the fundamentals of the housing market, just as was the case with stock prices at the peak of the stock bubble in 2000. It also led to enormous overbuilding of housing.
There is no reason to expect house prices to bounce back at all, as house prices nationwide are just now returning to trend levels. Housing construction will pick up gradually as the oversupply from the bubble era is gradually reduced through population growth, but there is no plausible story where we will see some sort of boom in housing construction at a time when vacancy rates remain near record highs.
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