Dave
新手上路
- 注册
- 2002-02-20
- 消息
- 1,577
- 荣誉分数
- 0
- 声望点数
- 0
While that's been a boon for the economy, it could have unpleasant consequences in the long term. Never before have consumer debt levels been as high as they are now. Total household debt stands at $7.4 trillion, almost double what it was at the beginning of the 1990s. In part that's because more people are buying homes, but it's also the result of the refinancing boom, which has encouraged households to borrow more against the increased value of their home. "Debt is fixed, while asset values aren't," says Levy. "If we have a sharp weakening in the housing market as we did in parts of the country in the 1980s and 1990s, suddenly all that leverage causes problems for consumption and lending." And debt as a percentage of home asset values has been steadily increasing. In the early 1990s, mortgage debt to home values stood at 35%. Today it has jumped to 45%.
That's why economists like Levy and Shiller are worried about a housing bubble. They see it playing out like this: As interest rates rise, housing becomes less affordable and demand slows. As demand slows, prices can't be sustained and may even fall, as they have in San Francisco. Then, as home prices stagnate, owners cannot tap into equity gains and borrow money, so they curtail their spending. Worse, households with high debt levels may find it increasingly difficult to sustain mortgage payments, leading to more homes on the market and further price declines.
The housing bubble theory relies on one of two things happening. Either interest rates have to rise high enough to choke off demand or some other factor must reduce our appetite for real estate. And in today's volatile world, it's not hard to imagine some sort of shock to the property market--the U.S. entering a war with Iraq, say. That could prove a big enough blow to consumer confidence to dampen demand for homes and lead to a huge drop in prices.
So how can you tell when there's a bubble? One sure way is to wait until it bursts and see how far prices plunge. But by then, of course, it's too late to do anything about it. Another is to monitor the market for signs of speculative behavior. Craig S. Davis, president of Home Loans and Insurance Services at Washington Mutual, explains his trusty bubble test. "First, you get a lot of cocktail chatter. Everyone's talking about how much money they're making on housing," he says. "Then you see multiple bids and offer prices jumping above asking prices. That's when you have a bubble." But Davis says he doesn't see any evidence of that kind of activity right now. Nor is he worried about a housing bubble around the corner.
For Davis and other home lenders, the exceptionally strong housing market has been driven by solid fundamentals, not speculation. The drop in mortgage rates to a 30-year low, growing real disposable income during the downturn, an increase in the number of households across the country, and new mortgage products like hybrid adjustable-rate loans go a long way toward explaining the housing phenomenon. Economists like Christopher Wiegand at Salomon Smith Barney also emphasize that the supply side of the equation doesn't at all resemble a bubble. Normally, in past housing bubbles such as the one in the late 1980s, supply from overbuilding flooded the market. Today, the supply of homes is at its lowest level since the early 1970s. "Many builders have had to finance their capital through the markets and banks, which have been guarded," he says. "As a result you haven't seen a big speculative burst in residential construction."
Perhaps most reassuring of all, while prices have risen consistently in most regions across the country, they haven't risen nearly as much as during the last housing bubble. For instance, look at Massachusetts. In the past three years home prices have averaged a 12.6% annual increase, while during the mid-1980s they averaged 23.3%. The story is much the same in areas like California, where prices seemed totally insane in the late 1990s. During the past three years home prices have increased at an average annual rate of 11.3%, compared with 16.7% at the height of the late-1980s bubble.
There are other encouraging signs too. Delinquencies, which started to rise last year, have turned down again more recently. According to the Mortgage Bankers Survey, delinquencies fell in the fourth quarter and remain at a fairly low level. The most encouraging news is that the job market has finally started to recover. Jobless claims have been falling for several weeks in a row now, and the latest employment report, for February, showed that 66,000 new jobs had been created. And though economists expect unemployment to continue to creep up this year, the consensus is that the worst of the layoffs is probably behind us.
As long as inflation remains subdued, interest rates should also stay low, and that's good news for the housing market too. While rates for 30-year mortgages have already started rising and are currently around 7%, most economists are forecasting limited gains this year. David Berson, chief economist at Fannie Mae, expects mortgage rates to remain between 7% and 7.5% for the remainder of the year. Other economists, like Salomon's Wiegand, believe they could go a bit higher but not above 8%.
So where does that leave the housing market? Even mortgage lenders who are optimistic about the market expect activity to slow this year and price gains to be more modest. Duncan from the Mortgage Bankers Association expects average home prices to rise by 2% to 4% in coming years, rather than the 8% rate we've been seeing. Hackel from Merrill Lynch agrees. "Normally, we get a ramp-up in housing prices and then a long flat period," he says. "I think prices will be flat for the next three to five years."
Obviously, that won't do much for what already promises to be a sluggish recovery. Of course, if the worriers are right and the housing market collapses, we won't have a recovery at all. But with a bit of luck, the sector will cool down in an orderly fashion--and, economically speaking, we've been rolling a lot of sevens recently.
That's why economists like Levy and Shiller are worried about a housing bubble. They see it playing out like this: As interest rates rise, housing becomes less affordable and demand slows. As demand slows, prices can't be sustained and may even fall, as they have in San Francisco. Then, as home prices stagnate, owners cannot tap into equity gains and borrow money, so they curtail their spending. Worse, households with high debt levels may find it increasingly difficult to sustain mortgage payments, leading to more homes on the market and further price declines.
The housing bubble theory relies on one of two things happening. Either interest rates have to rise high enough to choke off demand or some other factor must reduce our appetite for real estate. And in today's volatile world, it's not hard to imagine some sort of shock to the property market--the U.S. entering a war with Iraq, say. That could prove a big enough blow to consumer confidence to dampen demand for homes and lead to a huge drop in prices.
So how can you tell when there's a bubble? One sure way is to wait until it bursts and see how far prices plunge. But by then, of course, it's too late to do anything about it. Another is to monitor the market for signs of speculative behavior. Craig S. Davis, president of Home Loans and Insurance Services at Washington Mutual, explains his trusty bubble test. "First, you get a lot of cocktail chatter. Everyone's talking about how much money they're making on housing," he says. "Then you see multiple bids and offer prices jumping above asking prices. That's when you have a bubble." But Davis says he doesn't see any evidence of that kind of activity right now. Nor is he worried about a housing bubble around the corner.
For Davis and other home lenders, the exceptionally strong housing market has been driven by solid fundamentals, not speculation. The drop in mortgage rates to a 30-year low, growing real disposable income during the downturn, an increase in the number of households across the country, and new mortgage products like hybrid adjustable-rate loans go a long way toward explaining the housing phenomenon. Economists like Christopher Wiegand at Salomon Smith Barney also emphasize that the supply side of the equation doesn't at all resemble a bubble. Normally, in past housing bubbles such as the one in the late 1980s, supply from overbuilding flooded the market. Today, the supply of homes is at its lowest level since the early 1970s. "Many builders have had to finance their capital through the markets and banks, which have been guarded," he says. "As a result you haven't seen a big speculative burst in residential construction."
Perhaps most reassuring of all, while prices have risen consistently in most regions across the country, they haven't risen nearly as much as during the last housing bubble. For instance, look at Massachusetts. In the past three years home prices have averaged a 12.6% annual increase, while during the mid-1980s they averaged 23.3%. The story is much the same in areas like California, where prices seemed totally insane in the late 1990s. During the past three years home prices have increased at an average annual rate of 11.3%, compared with 16.7% at the height of the late-1980s bubble.
There are other encouraging signs too. Delinquencies, which started to rise last year, have turned down again more recently. According to the Mortgage Bankers Survey, delinquencies fell in the fourth quarter and remain at a fairly low level. The most encouraging news is that the job market has finally started to recover. Jobless claims have been falling for several weeks in a row now, and the latest employment report, for February, showed that 66,000 new jobs had been created. And though economists expect unemployment to continue to creep up this year, the consensus is that the worst of the layoffs is probably behind us.
As long as inflation remains subdued, interest rates should also stay low, and that's good news for the housing market too. While rates for 30-year mortgages have already started rising and are currently around 7%, most economists are forecasting limited gains this year. David Berson, chief economist at Fannie Mae, expects mortgage rates to remain between 7% and 7.5% for the remainder of the year. Other economists, like Salomon's Wiegand, believe they could go a bit higher but not above 8%.
So where does that leave the housing market? Even mortgage lenders who are optimistic about the market expect activity to slow this year and price gains to be more modest. Duncan from the Mortgage Bankers Association expects average home prices to rise by 2% to 4% in coming years, rather than the 8% rate we've been seeing. Hackel from Merrill Lynch agrees. "Normally, we get a ramp-up in housing prices and then a long flat period," he says. "I think prices will be flat for the next three to five years."
Obviously, that won't do much for what already promises to be a sluggish recovery. Of course, if the worriers are right and the housing market collapses, we won't have a recovery at all. But with a bit of luck, the sector will cool down in an orderly fashion--and, economically speaking, we've been rolling a lot of sevens recently.
