Robert Schiller, of the Case-Schiller index fame, recently interviewed with Maria Bartiromo, of CNBC about the possibility of another housing bubble in the making right now.
Schiller commented that it is a very scary time right now, and there could be another housing bubble happening right now as well. Housing prices, until recently, had been falling every month for almost three years. Suddenly this summer, we saw an abrupt reversal from 3% monthly drops in values to 3.6% increases in values over just a month or two. This abrupt reversal is a subject of concern Schiller.
Unfortunately, bubbles are hard to call, in the early formation period. They become much more evident, as in the last housing bubble, once they have been ongoing for a period of time.
But even the last bubble was a little hard to call because everything was "bubbling." Commodities, stocks, housing - everything was rising in value simultaneously, and it was a little difficult to pinpoint if these were all bubbles, or if the economy was just growing at some exponential rate.
The bubbles were recognized for what they were when the bubbles burst, and the entire economy came crashing down around us.
According to Schiller, it is worrisome that some areas of the country are showing such dramatic increases in home values so suddenly and so quickly, and that consumer confidence is increasing as well. There are too many factors that say this should not be happening, most notably the extreme unemployment rate nationwide.
The two areas that saw the most explosive growth in housing values, Las Vegas and Phoenix, are still bad housing markets. But, California appears to be entering another bubble now. Per Schiller, Californians are a "breed of their own." They seem to like bubbles and are anxious to see another housing bubble, so they are making this happen.
But Schiller cautions that we are in "uncharted territories" here. We have seen the "Cash for clunkers" program cause a huge car buying spree, when automobiles were not selling at all. For the one month of the cash for clunkers program, car sales rose; but they have dropped back to prior to the clunkers program just as suddenly when it ended.
Will the same be true if the first time home buyers tax credit disappears, as scheduled November 30, 2009?
What will happen if mortgage rates suddenly rise, as has been forecast, when the feds stop purchasing mortgage backed securities? That has been phased back, with no dramatic increase in rates, but it is scheduled to stop altogether by the end of the first quarter 2010. If rates rise, will home buyers stop buying? Will home prices stop rising?
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