Posted by
Conservatarian on Wednesday, September 27, 2006 5:51:58 PM
The media is trumpeting the "bursting" of the housing bubble as though it were some sort of climactic collapse of the economy. That was the gist of the news blurb I caught this morning on one of CNN's fine morning newscasts - which makes me think that if indeed there ever was a "housing bubble", and if it burst at all, then it must have taken place many months ago, since CNN is by far one of the more timely purveyors of news/muck.
Housing, like any markets, has its prices adjusted by the dynamics of supply and demand. Real estate agents cannot arbitrarily set the prices of the houses they sell, nor can homeowners ask for an "inflated" price because they want to get rich quick. High prices are only a matter of perception - if one person finds the asking price of a bungalow too high, the next person might come along and find the asking price reasonable, and thus his transaction sets the real price for the property.
What looks like a bubble is the activity of investment in one's own home, which in general is a bad idea. Its foolish to believe that you can sell your house for a premium at the height of demand, and move into a more lavish abode across town for the same money, at the same time in the same market.
What the news missed was the good news about a receding housing market, and there is plenty of good news for nearly everyone, except maybe for the real estate agents and developers (but indirectly, its good news for them). Reduced sales lead to cost-cutting price reductions. A decline in property values leads to (bugle call) a buyer's market. With houses causing less, those in lower income brackets can buy new and larger, and more comfortable homes. Lower home values also equal lower property taxes, yet another boon for an already intolerably overtaxed population. Lower home values and lower taxes lead to a higher standard of living for people who purchase those homes.
But the buyer's market is at most a temporary condition of the market. Once home values recede, homes begin to come off the market and the interplay of a diminishing supply and unsatiated demand will raise prices and values again.
The media, of course, looking to hang all the economic bad news of the past 30 years on the current Presidential administration, ignored the positive ramifications of the decline in home values and the slowing market.