The Housing Bubble Will End

Two professors describe the possible economic consequences when the housing bubble begins to deflate.
August 26, 2004, 9am PDT | Chris Steins | @urbaninsight
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"A bubble occurs when exaggerated expectations of future price increases generate unusual demand either by people who fear being priced out of a market or by investors hoping to make a lot of money fast. A bubble is a self-fulfilling prophecy for a while, as successive rounds of buyers push prices higher and higher. But the willingness to continue to pay higher and higher prices is fragile: It will end whenever buyers perceive that prices are no longer going up. Hence, bubbles carry the seeds of their own destruction. Only time is needed for the bubbles to end.

If rates continue to rise and the economy stalls, housing demand will drop and, assuming that housing markets behave as they have historically, the markets will adjust slowly."

Thanks to Chris Steins

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Published on Tuesday, August 24, 2004 in Wall St. Journal
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