Monday, September 24, 2012

"There's No Housing Bubble to Go Bust"

Click to enlarge.

October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.

Source Data:
St. Louis Fed: Custom Chart


Troy said...

"and the number of new households"

because people create tradable wealth from the aether!

Casey Serin hadn't scuttled into the public eye until a year later, but in mid-2005 I was talking with my high school buds and I had by then understood the part about the banks securitizing their loans (and thus not caring about loan quality) enough to explain that part of the puzzle to them.

is the virtuous circle that was apparent to the Federal reserve -- quarterly payroll growth (blue) vs. quarterly mortgage debt growth (red).

By late 2005 we were borrowing $100B/month to keep the bubble going (prices had peaked 1H05, but everyone was hoping for one more bite of the appreciation pie).

+$100B/month for +250,000/mo in new jobs. Of course, this $100B/mo wasn't just supporting new jobs, it had to support ALL the jobs added since the dotcom crash -- 5 million (that's $20,000 per job per month -- not bad!)

Now, I don't particularly blame Bernanke here. If I were he in 2005 what would I have done . . . being honest would result in a spectacular market crash, 10X worse than the 1987 one (kinda like 2H08 I guess, LOL).


Stagflationary Mark said...


Here's how I see it.

I don't blame Bernanke any more than I would blame a bad astrologer.

That said, I don't expect Bernanke to fix our long-term structural problems any better than I would expect a bad astrologer to fix them, lol. Sigh.


Troy said...

The Fed has immense powers to change financial realities.

QE3 is not necessarily small beer, but what it's going to do for J6P remains to be seen.

We're hitting a demographic squeeze here as the nation's housing stock has to handle the BB plus Gens X & Y, as Y starts turning 30 en-masse.

This is bullish for rents! But rents are just wealth transfer from the 95% to the 5%, so that's not particularly bullish for J6P.

As rents go up, and mortgage rates go down, that will give a tailwind for home valuations, too.

But that this nation thinks rising housing costs are a net good just means we belong in a booby hatch.

Stagflationary Mark said...


The Fed has immense powers to change financial realities. Government

QE3 is not necessarily small beer, but what it's going to do for J6P remains to be seen. Inflation

In all seriousness, I'll believe the Fed will fix our problems when the Fed manages to pump cheap oil.

I say this because J6P and the wife of J6P were convinced by the powers that be that a long commute from suburbia in two single-occupancy vehicles would not be a problem (as long as oil remained cheap and neither lost their jobs).