Could the Housing Bubble Reinflate?

More

Karl Smith -- Assistant Professor of Public Economics at UNC-CH & Blogger at Modeled Behavior

My baseline scenario for the U.S. included a rapid increase in the number of multifamily housing units and a general return to renting.

However, a few factors are combining to make me think that an alternate scenario, one in which the single-family housing bubble returns, is increasingly likely.

First, multifamily starts simply aren't increasing as fast I thought they would. This means that rent pressure will be even more severe, and quite plainly there simply won't be enough apartments to absorb all of the newly forming families.

Second, no permanent solution to the global savings glut has been offered, and with austerity across Europe and deficit cutting on the agenda for the United States, the fundamental problems will only increase.

Third, Fannie Mae and Freddie Mac are considering bulk sales of foreclosed properties that will potentially slow the stream of distressed properties onto the market.

All of these factors combined mean that single-family home prices may stabilize in the near future. However, given the dynamics in the credit markets, stable prices do not seem like an equilibrium. Once prices stabilize the incentive to begin massively expanding credit to potential borrowers will be enormous and is likely to reignite.

I would tend to think it's unlikely that we will get the kind of price appreciation we saw the first time around. However, it is not impossible, and it's certainly possible to get a strong uptick in construction.

Also, I'd like to point out now that while a return of the housing bubble would prompt concerns that regulation has not gone far enough to curb abusive lending practices, it is not clear to me that any regulation would successfully stop this process. 

Jump to comments
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Get Today's Top Stories in Your Inbox (preview)

A Technicolor Time-Lapse of Alaska's Northern Lights

The beauty of aurora borealis, as seen from America's last frontier


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

What Do You Wish You Learned in College?

Ivy League academics reveal their undergrad regrets

Video

Famous Movies, Reimagined

From Apocalypse Now to The Lord of the Rings, this clever video puts a new spin on Hollywood's greatest hits.

Video

What Is a City?

Cities are like nothing else on Earth.

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Writers

Up
Down

More in Business

Just In