The Housing Bubble is Back
Is an asset bubble merely in the eye of the beholder? This is what the multitudes of monetary authorities (central banks, realty industry analysts, etc.) are claiming: there’s no bubble here, just a ‘normal market’ in action.
This self-serving justification—a bubble isn’t a bubble because we need soaring asset prices—ignores the tell-tale characteristics of bubbles. Even a cursory glance at the charts reveals various characteristics of bubbles: a steep, sustained lift-off, a defined peak, a sharp decline that retraces much or all of the bubble’s rise, and a symmetrical duration of the time needed to inflate and deflate the bubble extremes.
It seems housing bubbles take about 5 to 6 years to reach their bubble peaks, and about half that time to retrace much or all of the gains.
Bubbles have a habit of overshooting on the downside when they finally burst. The Federal Reserve acted quickly in 2009-2010 to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities.
When bubbles are followed by echo-bubbles, the bursting of the second bubble tends to signal the end of the speculative cycle in that asset class. There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough.
Dozens of stats and charts support this assertion. With one big departure from 2007: This time around housing is just part of a constellation of bubbles that includes government bonds around the world, equities, and all manner of trophy assets like fine art.
Predicting the imminent end of this financial mania is tiresome for both writers and readers, so let’s just assume it will end eventually, and that its demise will be spectacular.