Tuesday, August 30, 2005

Dust-Bowl Days, Con't.

Continuing yesterday's discussion of the housing bubble, Galley Reader and Redskins Super-Fan P.G. writes:
Ok, so Vegas leads the list and it’s got nothing but space to build on. But you’ve missed one component: zoning restrictions. Take CA for example, quite a few cities on your list are in CA, but do you realize how hard it is to build a development in CA? I don’t know what the rules in NV are, but I’m guessing they probably aren’t developer-friendly. Vegas is the fastest growing city in the US, so there is a huge demand for housing and probably a supply that doesn’t match that demand. I live in Loudoun County, VA, and if you drive through it you’d think that there was nothing but space to build. But zoning restrictions limit land use to one home for every 7-10 acres in western Loudoun. Kinda hard to build homes to meet the demand of America’s fastest growing county when you’re limited to building a home on 10 acres. . . . the market is overpriced in many areas around the country. Where wage increases cannot sustain increased home costs you’ll see a correction. But the doom and gloom housing bubble collapse that we’ve been told to expect hasn’t happened and probably won’t happen. Mind you, 2 years ago we were told the rate of increase in home values could not continue and yet in continued for 2 years.

As for Greenspan’s prediction of a bubble burst, he warned of a stock market collapse in 1996, a full 4 years before it actually happened. In economic terms a prediction that comes 4 years early is not excellent foresight, it’s just plain dumb.

The dot-com bubble may have burst later than expected, but the point is, it still popped. We did not have Dow 36,000, as some very smart people predicted. We did not have unlimited growth in the stock market because a new economy changed the principles of market physics. And I suspect (hope/dream/etc.) that this housing market is a bubble that must burst, too.

Yes, there is growth in demand and surely in some places prices may be upped by zoning problems, but there are too many non-dense, non-populous, non-"hot" markets that are out of control for zoning regulations to account for everything.

Today I point to posts from suburban Minneapolis and Boise (Boise!) about sky-rocketing house prices. What is at work here is tulip-mania, fueled by low interest rates, lending malpractice, a weak stock market, and a national psychosis about home ownership.

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