In June, the term "housing bubble" was used 312 times in American
magazines and newspapers. That's up sixfold from a year earlier.
If chatter alone pricked a price bubble, we'd hear a bang, or at
But so far, no pop, no hiss. As of the second quarter of this
year, home values in the United States were up 14.1 percent in the
past year, reports David Berson, chief economist for Fannie Mae, a
major buyer of home mortgages from financial firms.
His "best guess" is that home sales are "very close to peaking."
In some hot housing markets, such as San Diego and Washington, homes
are taking longer to sell. But prices aren't tumbling.
Blame today's high house prices, often staggering to first-time
homebuyers, on the Federal Reserve's past "excessively easy"
monetary policy, says veteran Wall Street economist Robert Parks.
Low interest rates and the Bush administration's expansionary fiscal
policy have created "an unprecedentedly big and dangerous bubble,"
warns Mr. Parks, who predicted the last two stock-market crashes.
"All big bubbles burst. However, nobody can say just when."
Harvard University economist Edward Glaeser reserves judgment.
"It could happen," he says. "But I don't know."
His relative calm stems from research with two other economists
indicating that the main reason house prices have flown aloft in the
past 20 or 30 years, particularly on the two coasts, is the
increasing difficulty in getting regulatory approval to build new
That situation won't change anytime soon. Last week, the Census
Bureau reported the July annual rate of housing starts as barely
exceeding 2 million. That sounds like a lot, but the rate of growth
in overall housing has fallen. In a sample of 120 metropolitan
areas, the housing stock expanded 40 percent in the 1950s. In the
1990s, it rose only 14 percent. Further, housing growth in that
decade was just about 7 percent in San Francisco, New York, and Los
Angeles, notes Mr. Glaeser.
Cities have changed from "urban growth machines to homeowners'
cooperatives," he notes. Developers probably are less able to
"bribe" or otherwise get city officials to grant them zoning changes
or permits for unpopular new housing. More affluent, more educated
residents use their political clout to block such developments,
which could damage their own house values or the beauty and
convenience of their district.
In what Princeton University economist Paul Krugman has called
the "flatland" (the Midwest), it is easier for builders to turn
farms into housing than in the "zoned zone" (heavily zoned areas on
the coasts), where it is generally hard to obtain land to build on. …