Housing booms and bubbles


The New York Times yesterday had an article on the disparity of the housing markets between the Northeast and the Midwest (see Around U.S., a House Is a Home but Not a Bonanza). I have a little townhouse in Alexandria, VA, 3 bedrooms, 1 full bath, 2 half baths. My neighbors just sold theirs for $190,000. Back in Chattanooga, TN, my aunt has a big fine house, very nice neighborhood, 5 bedrooms, 3 baths, twice the square feet I have, that just sold for about $189,500. Her's probably went up in value around the rate of inflation. Mine, well, let's just say I've done real well in the past three years I've owned it.

Over the long term, house values tend to increase at roughly the same rate as incomes in any region, economists say. Because prices have outgained incomes on the coasts the last two decades, many analysts expect the housing gap to narrow eventually - but they were saying the same a decade ago.

"It takes generations for people to react to economic realities," said Patrick Lawler, chief economist at Office of Federal Housing Oversight, which oversees Fannie Mae and Freddie Mac, the mortgage companies. "But it's remarkable that prices could have moved so differently over an extended period of time without more correction occurring."

It will begin to occur, real estate agents say, only when people decide that a mansion in Fort Wayne is more appealing than a small apartment in New York or San Francisco.

This tells me that either jobs aren't as plentiful, or don't pay as much for the education. Otherwise, all other things being equal, we'd see people choosing the mansion in Fort Wayne. And this gap is growing wider. This, like other gaps that have been forming, do not bode well for America.

We're going to have to start looking at these income inequalities a lot closer, otherwise this gap is going to grow wider and wider, until it rends the fabric of this country. I don't think this administration is going to be concerned at all about income inequality, though. It's more interested in preserving cheap labor.

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