Sunday, September 18, 2005

Champagne Bubbles Are Good

Daniel Akst, a journalist and author who writes about business, has a piece in the New York Times that celebrates the popping of the housing bubble as something everyone should celebrate:
It's funny how much comfort people can derive from something as transparent as a bubble.

Now that home prices in some markets are showing signs of moderating, lamentations are rising from all sides about the many bad things that may happen as a result. These include bankruptcies, foreclosures, bank failures, unemployment and recession.

Unfortunately, all of this hand-wringing tends to distract from the essential truth about soaring home prices, which is that they are a bad thing. So before you become carried away with mourning, let me break the news: the housing bubble never loved you. The bubble is not even your friend. In fact, the very best thing you can say about the passing of this particular bubble is "good riddance."

What's so bad about skyrocketing home prices? Almost everything. First, they make life awfully difficult for people who aren't already homeowners and do little for people who are, because selling one inflated house only to buy another affords little profit.

It's true that mounting home equity makes for a nice piggy bank, but it probably also suppresses other kinds of saving and encourages excessive debt. And it has helped addict global producers to American consumerism, because it gives Americans the confidence - and in many cases the wherewithal - to spend some of the inflated value of their homes. But bubbles aren't very durable. Wouldn't it be better if Asian and European domestic demand could pick up some of the slack?

Sky-high home prices also divert too much capital into home building from potentially more productive uses. And these prices fuel risky, not especially useful speculation in residential real estate. Then there is the matter of sprawl: all those new homes will mean more driving, more fossil-fuel consumption and more pollution.
Read the entire story at this link.

— The Boy in the Big Housing Bubble