The Post Still Has Not Heard of the Housing Bubble

It apparently takes a long time for news to get to Washington, or at least to the Washington Post. It apparently still has not heard about the housing bubble -- you know that $8 trillion asset bubble whose crash gave the country the worst downturn since the Great Depression.

The Post ran a major front page article about the withdrawal of government support for the housing market without ever once discussing the bubble and where prices stand in relation to their long-term trend. In fact, the article did not even discuss such basics of the housing market as vacancy rates (record highs) and trends in rents (falling in nominal terms for the first time ever).

If the Post had talked to anyone familiar with the fundamentals of the housing market they would have told them that prices are still 15-20 percent above trend levels. The extraordinary level of government support in the last year, which includes the first-time buyer tax credit and the explosion of FHA financing, in addition to the massive Fed and Treasury purchases of mortgage-backed securities, has temporarily stopped the correction from the bubble. However, this correction is virtually certain to continue once these supports are withdrawn.

Unfortunately, the Post seems unable to give any perspective on the housing market to readers since it still has no understanding of the dynamics of the bubble. Its main source during the run-up of the bubble was David Lereah, the chief economist at the National Association of Realtors and the author of the 1005 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From it.

--Dean Baker

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