Sunday, June 26, 2005

Stephen Roach takes on the housing bubble

See From Bubble to Bubble

"The US is very much in control of its own destiny insofar as coping with the excesses in asset markets. In that important respect, America’s equity and property bubbles have one key ingredient in common: The principal blame for both bubbles, in my view, lies with the Federal Reserve."


Blogger HJA said...

I don't know Mr. Roach but I'll start looking for more of his writings. It kills me when I see the over-educated, better writers/teachers than practitioners, pontificating posers miss very obvious points.

Note: Greenspan is the messiah of the religion that is Economics. Mr. Roach should not have gone there

While Fed policy may have sparked both, the difference between the equity and property markets is the purchaser. The majority of equity purchasers are speculators who hope their assets are good short-term investments. But, in the current property market the majority is homeowners who hope their HOMES end up being good long-term investments.

The last housing “bubble” had too many short-term speculators buying and selling. This time around, we have actual population shifts. People are moving out of the cities and into the burbs. They are moving to the South (US and IL) where they can get more home for their money. These people are not likely to dump their asset when they get spooked. Remember, dumping is what causes significant dives.

When or if rates return to 7-10% range, you’ll see a reduction in the number of buyers but you won’t have people dumping their properties and moving back into apartments. The speculators will suffer but they are he minority.

12:27 AM  

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