Experts at the Washington, D.C.-based Center for Economic and Policy Research, who have long touted the current housing boom as a bubble, have selected the winner of an essay contest aimed at bursting their bubble theory.
 
Hilary Croke, a Federal Reserve Board employee, wrote a four-page essay expressing her personal view that while the inflation of housing costs is expected to decelerate, “a collapse commensurate with previous asset price bubbles is unlikely.”
 
The Center for Economic and Policy Research, which focuses on economic and social issues, launched the essay contest in January. Entrants were asked to explain: “Why there is no housing bubble.”
 
Croke’s essay, which includes accompanying charts and tables with housing statistics, notes that demand for housing “has increased substantially,” housing inventories are low, and tax incentives, low interest rates and a growth in the mortgage lending industry have made home ownership more accessible. Also, real estate “has become an increasingly attractive investment option,” Croke noted.
 
Increasing house prices could be attributed, in part, to an increase in the quality of housing, she also noted, and the median size for new one-family houses completed has increased from 1,525 square feet in 1972 to 2,114 in 2002, with newer homes more likely to contain more bedrooms, bathrooms and to have air conditioning systems.
 
In a two-page refutation to this essay, center co-director Dean Baker, who received a doctorate degree in economics from the University of Michigan, wrote, “The fact that people are borrowing against their homes at a rapid rate (more than $750 billion in 2003) is more evidence of an unsustainable bubble. The ratio of mortgage debt to home equity is at record highs. This fact is especially scary given that equity values may be inflated by as much as 20 to 30 percent as a result of the housing bubble, and that the nation’s demographics (with the baby boomers approaching retirement) suggest that many homeowners should have largely paid off their mortgages.”
 
He also argues that new homes are being built “faster than can be supported by population and income growth,” and that the nation is headed for a $2 trillion to $3 trillion loss in housing wealth, “and a downturn that is even worse than the fallout from the stock market crash.”
 
 
***

Send a Letter to the Editor for publication.
Send a comment or news tip to our newsroom.
Please include the headline of the story.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
The best event in real estate kicks off next week! Tickets are selling quickly.Register Now×
Limited time: Get 30 days of Inman Select for $5.SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription