Bubble? What Bubble?

Federal Deposit Insurance Corp.
is dismissing the notion that the housing market is in the midst of a "speculative bubble." A story out of Knight Ridder Newspapers today says:

"FDIC officials … frowned on the notion that the recent rise in housing prices is a speculative fluke. The banks the FDIC regulates hold 30 percent of the credit risk on outstanding U.S. mortgages.

Today, the agency will release new state-by-state economic profiles. Taken together, the profiles conclude that most booming U.S. housing markets are sustained by strong growth in new jobs.

"In general, that is where home prices are rising most rapidly," said Barbara Ryan, associate director of the FDIC's research division."

That's very interseting considering that President George W. Bush narrowly escaped being the first president since Herbert Hoover to preside over a net loss of jobs in his first term. Indeed, as voters went to the polls in November 2004 the preliminary numbers indicated such was the case, but when final numbers were tallied Bush averted the dubious distinction. It is also curious that this boom coincided, in part, with California's gubernatorial recall election in 2003, during which the leading candidates debated on national television about whether the state was losing jobs, or not. The winner of that election, Gov. Arnold Schwarzenegger, was so concerned about businesses leaving the state that he later went on a billboard campaign to woo employers back. The billboards pictured the former weightlifter/actor in a t-shirt with the message: "Arnold Says: California Wants Your Business. (Actually, he says Kah-li-fornia.)"

"When I became Governor, I said I would tell the country and the world to come to California, take advantage of our markets, our access to capital and our workers, who are the most creative and productive in the world"

California Employment Development Department numbers show that jobs have been increasing. The latest figures, released June 17, showed that:

Over the year, the professional and business services industries reported the largest gains, up 58,000 jobs. The gains were mostly in the administrative and support services sector, which was up by 39,200 jobs (primarily in employment services, up 28,200 jobs), and in the professional, scientific and technical services sector (up 20,000 jobs).

The key to that blurb is that the bulk of the growth occured in "administrative and support services." I doubt that receptionists and file clerks are fueling this housing boom. It will be interesting to see what's reported in the FDIC's new state-by-state economic profiles. Stay tuned.