[PEN-L:32675] RE: Re: A question to FMC: Housing Bubble?

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:32674] Re: A question to FMC: Housing Bubble?

> Sabri Oncu wrote:
>
> >Do you have any hard data supporting or refuting the bursting of
> >a housing bubble in the area? Or do you thiink this is just a
> >normal drop in a period of economic hardship?

Doug writes:
> Most U.S. housing indicators have been strong. New house sales fell
> in Oct, but they'd been rising since February, and are still over 1m
> units at an annual rate. Existing house sales rose strongly in Oct,
> and are well above June levels. Builder indexes are strong, and so is
> mortgage demand. There's talk of saggy prices, like what you recount,
> but the normally cyclical housing market held up very well during the
> recession. This will either be vindicated by a broader recovery soon,
> or it could be a remaining unpopped bubble (like the dollar).

it shouldn't be a surprise: the Fed cut rates aggressively in 2001 and one time (in a big way) in 2002, while housing is the part of investment that is most responsive to rate cuts. (Business fixed investment has fared poorly, of course.)

The question is about what will happen if and when overbuilding is seen and interest rates cuts no longer work. Further, nominal rates may attend their absolute minimum (zero).

Jim