2) Even though there is a bubble, there are also very few new houses that are being built, mainly due to zoning. Meanwhile, people continue moving to the O.C. End result is that even if interest rates were to rise, the supply-n-demand imbalance of this area will counteract any downward pressure. Mind you, this only applies to where I'm living now; I'm not sure the same supply-n-demand imbalance exists where I used to live (Oregon).
Strangely enough, its the same in OR and WA state even with high unemployment. The argument is that with interest rates so low, people are doing whatever it takes to get into a house. The rising vacancy rate in the rental markets supports that thesis. During the past two years, the average rent has actually gone down in Seattle which housing prices continue to go up.
The fear is, of course, that when interest rates go back up, demand will collapse completely, fulfilling your argument that we have a bubble like situation. However, in this case, its not increasing prices and higher profits to be realized, common bubble traits, that have drawn people in but rather, low interest rates. That's why economists don't refer to it as a bubble.
ted |
