More Evidence of a Bursting Housing Bubble

New data from the Fed show that credit card debt rose at a 9.8 percent annual rate in June after increasing at an 11.0 percent rate in May. This extraordinary two-month rise is consistent with the story that homeowners are finding it increasingly difficult to borrow against their home � presumably because prices are no longer rising. If you need to borrow, and borrowing against the home is not an option, credit cards may be the next best alternative. A sidebar on home prices: all of our standard house price series use contracted sales prices to measure price changes. This could be leading to an overstatement of current prices, and therefore concealing price declines. The reason is that in many bubble areas it has become common for sellers to offer various inducements � for new homes, builders offer free additions/alterations. For existing homes, sellers offer help on closing fees, one-year of condo fees, etc. Check the real estate listing to get a sense of what�s being offered in your area. Anyhow, since these kickbacks are not deducted from the sales price, the sales price entered in the various house price indices will be higher than the effective sales price. Without some serious investigation of the size or frequency of these seller kickbacks, it is impossible to know how large they are relative to the price, but it is certainly possible that they could be leading to a substantial overstatement of prices in some of the most affected areas.