America's housing bubble has not exactly burst. It's just sprung a leak the size of your average mortgage banker. What's clear is the boom is over. All across America, backlogs of unsold homes are long. Price increases are slowing. In some markets, home prices are actually dropping. I just bought a house in Berkeley, California, that I couldn't have afforded a year ago. I still can't afford it, but at least I'm breathing.
It's better that bubbles leak than burst. Gradual declines are always easier to manage than explosions. But the housing boom has been so large and important to the American economy over the past five years that even this slow leak will cause severe headaches.
One will be experienced by millions of households that had turned their growing home values into piggy banks to finance their continued consumption. That easy route to cash is just about gone. The inevitable result will be less consumption, which will mean fewer jobs.
A more immediate problem will arise for all the people making, financing, and selling houses. Here we're talking about a vast army of carpenters, plasterers, roofers, plumbers, electricians, mortgage bankers, home inspectors, real estate agents, architects, structural engineers and many more. According to Moddy's Economy.com, housing-related employment has accounted for almost a quarter of the five million jobs that have appeared since 2003.
In other words, without the housing bubble, the American economy will lose a lot of its fizz. I don't like bubbles, but from a jobs standpoint this recovery has needed all the fizz it can get. Median wages have gone nowhere. The ranks of the long-term unemployed have been unusually high. The percent of the labor force with jobs is lower than in 2000. Housing has been one of the few bright spots in the economy.
All of which brings us to Ben Bernanke and his gang at the Federal Reserve Board Open Market Committee. They're determined to raise interest rates because they think the economy is too fizzy and still prone to inflation. I hope they listen carefully: The hissing sound they hear is air escaping the housing bubble. There's less fizz in the economy than they think. Raise interest rates, and the Fed raises the likelihood the economy will deflate.
Bush takes credit for "creating" all these jobs. I wonder if he'll take the credit for their loss? I doubt it.
None of this bothers me personally. My house is paid for, my equity line is paid up, and I have enough money in the bank to pay off my credit cards if I had to. It's one of the advantages of staying in one place for a long time, and probably the only advantage of getting to be a sweet, curmudgeonly Olde Farte (Lctp!*) such as I. It helps that real estate prices have increased by a factor of six in the last thirty years and we were able to use that to our advantage a few times. Having said that, if I had to buy it today, I couldn't afford the house I live in.
My advice to you youngsters who would like to have your own home is to wait a year or two until the bubble is pretty much deflated. There's going to be lots of foreclosures due to the free-wheeling mortgage deals that sucked in marginally qualified homebuyers, and you may find just what you want at a bargain price - or at least a manageable one. It should go without saying that it is better to buy and pay for your own place than to rent and pay for someone else's.