Wednesday, September 12, 2018

Housing: Part 319 - "Talk of a Coming Decline"

Here is a Wall Street Journal article from February 2002, headlined, "Housing Market's Sustained Growth Prompts Talk of a Coming Decline" (HT: Nick Timiraos)

It's a good example of how strong the idea of a predetermined bubble/bust was.  Even by 2002, this was becoming the canon, presumptively.  By the time the bust came, there was a broad exasperation with the supposed bubble that had refused to bust, in spite of years of insistence that it must.

Here is a graph from OECD data of home price/income measures for several countries.  The difference between the US and the other countries is that when we became enamored with a communal case of attribution error, we were singularly capable of imposing a crisis on ourselves in order to play out the national narrative we had constructed.  And, as we imposed that narrative on our housing market, the attribution error that led us to create the crisis also led us to blame the scapegoats that attribution error had created.  So, to this day, practically any article from any point of view about what happened during the crisis will begin with the presumption that lenders and speculators did this to us by creating a bubble that inevitably would crash.

There are a handful of countries that have had stable home prices - Germany, Switzerland, Japan, etc.  But the countries most like the US, in a number of ways (higher income growth, trade deficits, lower manufacturing employment, etc.), are the countries shown above.

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