Like the aftershocks of a major earthquake, the housing bubble that burst in the U.S. at the onset of the financial crisis is sending waves of shock and caution throughout the country. The housing market is being watched for any activity that might indicate potential trouble.
The COUNTRY Financial Index Survey measured Americans’ feelings about personal finances, financial security, and asked about the housing market along the way. It found that 48 percent of those who participated believe the country may be headed for another bubble in the housing sector.
But while almost half of the country sees the potential for such an event, only 25 percent included it in their top-three list of economic concerns. About half of those who participated didn’t include another housing bubble in their economic concerns at all. But a strong housing market can be key for the economy for a variety of reasons.
The COUNTRY Financial Index Survey is a national telephone and online survey of at least 3,000 Americans.
The National Association of Home Builders calculates that when housing was at its high point, in 2005, construction of new homes contributed $768 billion to the U.S. economy. By the first quarter of 2008, that figure had declined by 33.9 percent.
New home construction contributes significantly to local economies, according to NAHB reports. Building a new home, NAHB said, creates jobs for local construction crews; it also increases city and state revenue through new taxes, generates flow of money within the local economy, and creates employment opportunities for industries related to new homes like utility work.
CoreLogic, a company that provides financial and consumer information, released real estate-specific jobs data after the delayed release of September’s job data. Employment was up from the previous year in several sectors including construction (3.2 percent), workers at home improvement stores (3 percent), and mortgage brokers (6.2 percent).
Investors and policymakers want a strong housing market because it creates jobs and stimulates the local economy. They do not want an inflated one because of the potentially disastrous effects such an economy has when it crashes. This is what some fear will happen as they examine data or see that home sales increased 22 percent this September compared to September 2012, marking 21 consecutive months of year-on-year improvement.
Rising sales and prices are factors that attributed to Dallas Fed President Richard Fisher saying that the U.S. may be approaching another bubble. Reuters covered his comments earlier this month after he gave a speech in New York. “No one knows when the bubble pops,” Fisher said. “But I would argue that … with each dollar we buy in Treasuries and mortgage-backed securities, we’re getting closer to the tipping point.”
There is heavy caution in avoiding the mistakes of the recession, but there are also analysts who do not see the aftershocks materializing. Realtor.com’s National Housing Trend Report indicates that the market is stabilizing. To explain that there will be a recovery but not a bubble in the housing market, CoreLogic points to calculations that show only two markets are overvalued today, and that housing prices are rising for the right reason — demand.
It would be inaccurate to say that no one could have predicted the housing crisis, because some, like Richard Shiller, who is a 2013 Nobel Prize recipient in economics for his work on asset prices, did. He warned of the potential crisis for years before it hit. Caution can be a good thing, especially when trying to determine if an economic sector like housing and real estate is preparing to send shockwaves or stabilize.
Here’s how the U.S. equity markets traded on Tuesday: