Would it be possible to have a new housing bubble? Yes, of course

Is a new housing bubble possible?

by Alex J. Pollock

Now is definitely not the time for the Fed or politicians to promote further rapid house price inflation.

Would it be possible to have a new housing bubble? Yes, of course. How long does it take to forget the lessons of the last crisis? By the historical record, about 10 years, and it is already eight years since the peak of the great U.S. housing bubble of 1999-2006, and five years since the end of the financial crisis of 2007-2009. As former-Federal Reserve Chairman Paul Volcker wittily observed, “About every 10 years, we have the biggest crisis in 50 years.”

Real estate is often at the center of financial crises, both here and in other countries, because it has the most leverage, that is, the most debt relative to value, of any economic sector. This makes it vulnerable to cyclical downturns in which prices go down when people thought they would go up. The U.S. had big real estate busts in the 1970s, 1980s, 1990s, and of course, the 2000s. 

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