Topic: Economics – Investing
re: Beginning of the End of Housing Bubble? – Dan Gilmor blog post
I doubt we are at the end of the bubble. However, financial bubbles are very difficult to time. My guess is the bubble will continue for over a year for most, if not all locations in the USA. And unless the bubble continues and prices reach levels much higher than they are now, the end of the bubble will not be dramatic decline of prices (say an drop in prices of over 25%) in most locations. Manhattan (with historically very volatile prices) and certain other locations will likely have dramatic declines. But overall the real estate market will slow down (fewer sales) greatly and may experience say a 5 year period where prices decline slightly (or increase slightly). Real Estate normally does not behave the same way the stock market does when a bubble breaks, but we will see what actually happens.
The risk of stagflation, while real, is small, I believe. The huge trade deficit, large unfunded liabilities (Social Security) and huge federal budget deficients are likely to cause problems. However I believe these problems will more likely result in long term slow degradation of the standard of living in the USA instead of a dramatic break of the sort that could result in stagflation.
The decrease in the standard of living due to these forces could well be masked by other forces that increase the standard of living. So the inevitable cost of us now living beyond our means (passing the bills on to our children and grandchildren) can be ignored fairly easily. It is not a good approach but it is likely the one we will continue to practice. A recession is much more likely than stagflation.
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