The Washington Post Is STILL Missing the Housing Bubble

The Post had a front page article with a headline warning readers that a "new round of foreclosures threatens housing market." Yes, well actually a huge oversupply of housing created by the bubble-driven construction boom is virtually certain to push prices back down to their trend level.

This one really is not hard. Nationwide, inflation-adjusted house prices rose by more than 70 percent during the bubble. Over the hundred years from 1896 to 1996 they had just kept pace with the rate of inflation. Prices must fall by another 15 percent or so to get back to their long-term trend. Given this departure from long-term trends, and the continued massive oversupply of housing as measured by record vacancy rates, it would be very surprising if house prices stabilized at their current level. Another wave of foreclosures will be a factor depressing prices -- and could cause prices to overshoot on the downside -- but prices would be virtually certain to fall further in any case.

The Post article included no discussion of the bubble. This is perhaps not surprising from a newspaper whose main source on the housing market during the bubble years was David Lereah, the chief economist of the National Association of Realtors and the author of the 2006 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

--Dean Baker

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