Housing Bubble: Who's Paying Attention?

"Every new release of data on the housing market provides more evidence that the housing bubble is finally bursting. Compared with year-ago levels, nationwide housing starts are down 18 percent, sales of existing homes are down 13 percent, and new homes sales are down 17 percent. Inventories of both unsold new and existing homes are at record levels. Prices have already begun to fall in many parts of the country, and seem certain to fall much further before the market stabilizes.

Homeowners have been borrowing more than $700 billion a year from the equity in their houses. This borrowing has pushed the savings rate into negative territory for the first time since the beginning of the Great Depression. As a result of this massive borrowing, the ratio of mortgage debt to home values has never been higher. With home prices falling, millions of homeowners will soon lose the ability to borrow against their homes. This will force people to curtail their consumption. It many cases, it will cause people to lose their homes, as they will not be able to maintain their mortgage payments.

For whatever reason, the vast majority of economists and policy analysts devoted their attention to far less important issues. The analysts who did focus on housing insisted that there was no bubble, with very few exceptions. As a result, there were no warnings; in fact, many homebuyers were urged into this inflated market, sometimes with a big push from the government, or even non-profits trying to promote wealth building.

Tens of millions of families bought homes at bubble inflated prices and now face the prospect of seeing their life savings disappear in the housing crash. We may not be able to get these people's money back, but we should at least be clear on who sent them down the wrong path."