United States housing bubble (Part-2)

Identifying the housing bubbleAny type of economic bubble is difficult to identify except in hindsight, after the crash, although many economic and cultural factors have led several economists to argue that a housing bubble exists in the U.S. The Economist magazine said that "the worldwide rise in house prices is the biggest bubble in history," so any explanation must consider global causes as well as those specific to the United States. Former Federal Reserve Board Chairman Alan Greenspan said in mid-2005 that "at a minimum, there's a little 'froth' (in the U.S. housing market) ... it's hard not to see that there are a lot of local bubbles"; Greenspan admitted in 2007 that froth "was a euphemism for a bubble." President Bush said of the U.S. housing boom in early 2006: "If houses get too expensive, people will stop buying them... Economies should cycle." Based on markedly declining 2006 market data, including lower sales, rising inventories, falling median prices, and increased foreclosure rates, some economists have concluded that the correction in the U.S. housing market began in 2006. A May 2006 Fortune magazine report on the US housing bubble states: "The great housing bubble has finally started to deflate ... In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials." The chief economist of Freddie Mac and the director of Harvard University's Joint Center for Housing Studies (JCHS) deny the existence of a national housing bubble and express doubt that any significant decline in home prices are possible, citing consistently rising prices since the Great Depression, expected increasing demand by the Baby Boom generation, and healthy employment. However, some have suggested that the funding that the JCHS receives from the real estate industry may have affected their judgment. David Lereah, former chief economist of the National Association of Realtors (NAR), distributed "Anti-Bubble Reports" in August 2005 to "respond to the irresponsible bubble accusations made by your local media and local academics."Among other statements, the reports say that people "should not be concerned that home prices are rising faster than family income", that "there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors", and that "a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms." Following reports of rapid sales declines and price depreciation in August 2006, Lereah admitted that "he expects home prices to come down 5% nationally, more in some markets, less in others.