Apparently it is now generally accepted that the rise in house prices was an aberrant bubble, justified only in the minds of irrational buyers who ignored the fundamentals and expected house prices to keep rising simply because they were already rising.
But what were the fundamentals? Certainly, if one had foreseen today’s circumstances, it would have been clear that housing was not a good investment. If one had been able to say, “In a few years, the unemployment rate will rise to 10%
Go read the whole post. I can’t choose the key quote but basically he argues that high asset prices were required to achieve a normal unemployment rate and therefore they weren’t aberrant. He argues that it must be possible to achieve normal unemployment without a bubble. He then sure seems to argue that since some asset price could have been sustainably high, clearly US houses were those assets.
More after the jump
This time I’m not convinced. You don’t define bubble and don’t respond to the alleged evidence that there was a housing bubble. Why was the relative price of housing in the 21st century so much higher than in the 20th (during which it was quite stable) ? Why was the ratio of price to rent so high ? Neither is easy to explain assuming 4% unemployment.
In effect you claim that, if policy makers agressively countered the recession and we were at full employment now then housing would have been a fine investment. So why did everyone with a brain and an open mind assert back in 2006 that there was a housing bubble (that is housing was a very bad long term investment) ?
I think an important issue is that you note a worldwide problem and assume that the US economy can solve it.
If you were writing about the alleged housing bubble in Ireland (I am sure there was such a bubble I only use “alleged” in an attempt to be polite) such a claim would sound silly. I think it is also silly for the USA. The US can’t keep running huge current account deficits forever. The global savings glut requires increased final demand in other countries