I disagree. The last real estate bubble of the late 80's came about as a result of S&L "deregulation". The amount of lending by S&L's to homebuyers skyrocketed, lending standards were relaxed, lots of questionable loans were approved. There was a large credit bubble component to that boom as well.
Bubbles generally have 3 prerequesites:
1) Loose monetary policy/easy credit/currency debasement
2) An object of speculation (be it internet stocks, tulips, McMansions)
3) A "rogue wave" or fundamental shift in the investing milieu that favors one investment class over another. Can be external events (wars, establishment of new trading partners or patterns) or internal (development of new technologies, changes in tax policy)
Clearly the bubble forming in Real Estate and in Credit meets all 3 of the above. Money supply has soared, far outstripping GDP easily for the last 2 years (and longer). Interest rates have been slashed 11 times by the Fed in a year and a half. Housing permits have hit records month after month, as have valuations, and housing price increases have also outstipped GDP by a wide margin. I'd say the rogue wave was three-fold: a) the change from the "one-time" exemption from capital gains tax for home sales to an every 2 year exemption b) vast expansion in structured finance and securitization begun in the mid-late 90's and c) bursting of the stock market bubble, encouraging capital flows to investments perceived to be safer, like homes. In the late 80's the object of speculation was the same, loose credit was the same (not loose in the sense of near-zero interest rates, but loose in the sense of abruptly relaxed lending standards). The rogue wave was different, that's about all.
Regards
Patron |
