Maestro says no housing bubble

Alan Greenspan said today:

Because of the degree of customization of homes, it is difficult to achieve significant productivity gains in residential building despite the ongoing technological advances in other areas of our economy. As a result, productivity gains in residential construction have lagged behind the average productivity increases in the United States for many decades. This shortfall has been one of the reasons that house prices have consistently outpaced the general price level for many decades.

So according to Greenspan, the price of houses has gone up because construction costs have gone up.

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.

So there we have it, don’t worry, nothing bad is going to happen. The Maestro said it himself.

Comments

[Michael H.]

Hi Half Sigma
This is an interesting arguement: if a sector doesn't improve, the amount of spending on that sector tends to increase over time. I think there's true here. I think that might be one of the reasons why the government sector has increased over time.

Housing construction is slowly improving. I have read that some luxury home builders are experimenting with some mass production techniques. The two things that I fear as a homeowner is 1) the housebuilder will improve the technology so significantly that it will make older homes almost obsolete 2) new roads make traffic better. I'm not too concerned about the latter.

[uma]

hey, what's with his sentences? why are they so long? and how do you make sense out of them? :)

[R. Alex]

I don't have a degree in economics, so I could be way off base here, but I'm curious as to why people are thinking of real estate as a singular entity. It would seem to me to be awfully unlikely that a "bubble" could exist across the country because every real estate market is incredibly different. I could definitely see real estate bubbles in particular areas (say Palm Beach) or even types of areas (like beach land generally, or mountainous land, generally), but I can't imagine the real estate circumstances in northwest North Dakota being at all similar to that in Mobile, Alabama, being at all similar to Riverside, CA, and so on...