12/2004: Are Home Prices the next bubble?   No...The FED

Economics has always been an interest of mine.   I started the Amquix.info website to express some of the economic concerns I had with the efficiency of the Amway / Quixtar business.    Now that little is happening in the Amway business I will probably be posting more topic relating  to money and economics like this one.

I was surfing around on the web and ran into this 2004 report from the Federal Reserve Bank of New York from December 2004 about whether we are in a housing bubble or not.   I guess hind sight is 20-20 but given how wrong they were then and the massive amounts of liquidity they are inserting into the system now, one has to wonder what monster they will create once the money hits the  system and inflation starts to explode.  The report was written by Jonathan McCarthy who is a senior economist and Richard W. Peach a vice president at the Federal Reserve Bank of New York.

Anyway the fed report summarized the following about the housing market in 2004:

• Home prices have been rising strongly since the mid-1990s, prompting concerns that a bubble exists in this asset class and that home prices are vulnerable to a collapse that could harm the U.S. economy.

• A close analysis of the U.S. housing market in recent years, however, finds little basis for such concerns. The marked upturn in home prices is largely attributable to strong market fundamentals: Home prices have essentially moved in line with increases in family income and declines in nominal mortgage interest rates.

• Moreover, weaker economic conditions are unlikely to trigger a severe drop in home prices. Historically, aggregate real home prices have fallen only moderately in periods of recession and high nominal interest rates.

• While such conditions could lead to lower home prices in states along the east and west coasts—areas where an inelastic supply of housing has made home prices particularly sensitive to changes in demand—regional price declines in the past have not had devastating effects on the broader economy.