This Old Housing Bubble?

Posted on Feb 22, 2013 | 7 Comments

Perhaps it’s time to buy a house.

During 2012, according to the Los Angeles Times, “foreclosures declined, housing inventory plummeted, mortgage interest rates hit record lows and demand from investors surged.” In Southern California, which had been hit particularly hard during the real estate bust, median prices have risen sharply.

“The recovery is for real, that is what I think is happening,” Esmael Adibi, director of Chapman University’s A. Gary Anderson Center for Economic Research, told the newspaper. “It is being driven by real demand, and fundamentals are favorable.”

That’s one interpretation of events. Another is that housing is in the middle of a “dead-cat bounce,” or even another bubble, one brought on by cheap money and a lingering mindset of speculation and getting rich quick.  We’re seeing an “echo housing bubble across the United States,” warned the Dr. Housing Bubble blog this past December. “Gains are coming largely from added leverage produced by lower mortgage rates.”

Weighing in along similar lines this month was former Ronald Reagan White House budget director David Stockman. “We don’t have a real organic, sustainable recovery,” he told Yahoo!’s Daily Ticker. “In a world of medicated money by the central bank, things aren’t what they appear to be.”

So what’s really happening? Peter Drucker lived through several speculative bubbles, and he knew enough of the past to be able to recite many more historical ones. As he saw it, they were an every-50-year occurrence within developed countries, and in the aftermath of a crash people always felt a sense of doom. “Every one of these ‘go-go’ periods was followed by a massive hangover, during which everybody believed that growth had stopped for good,” Drucker wrote in Managing in Turbulent Times.

Photo credit: Keith Williamson

Photo credit: Keith Williamson

In reality, said Drucker, growth never stopped, and probably never will. However, after any boom-bust cycle, the economy undergoes a structural shift and requires new foundations. “It then becomes important for a business to think through where the growth areas are for its specific strengths, and to shift its resources out of the areas in which results can no longer be achieved into those areas where the new opportunities can be found.”

In the meantime, whether we’re seeing that healthy shift, with real estate businesses finding new areas of growth (via a change in demographics, say, or new types of housing), or we’re simply trying to drink away the hangover—well, that’s something we’ll have to argue about.

What do you think: Is this a genuine housing recovery or an echo bubble?


7 Comments

  1. John Romanin
    February 24, 2013

    The first guy has his reasons and is riding among the herd toward another Cliff. Stockman is as right as rain . Drucker’s “observations” are as valuable as ever but not so applicable in this age of engineered and politicized outcomes. Students need to read Stockman’s book “The Triumph of Politics.” This will give them a perspective I’m sure is missing in most classroooms. Thanks Drucker Exchange for your great work. JR

    Reply
  2. George L. Williams
    February 24, 2013

    “Traditional” minorities. like blacks, latinos, and natives were especially hard hit (some say “targeted”) in the 2008 recession. If there is a “dead-cat-bounce-bubble” forming, due to cheap money, you can bet these groups will not be on the winning side of the bubble! If that proves to be true, then our economy will continue to decline in bubbles of succeedingly-smaller size until we all hit “bottom”.

    To avert a future like that, these minorities will have to discover how to form functioning economic organizations. That type of change would have to come from inside those groups, shaped by collossal outside forces.

    Reply
  3. Alba Patricia Valencia
    February 24, 2013

    To me everything is product influences through monetary policy to turn the economy in United States of America.

    Reply
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