(1) The alleged housing bubble.
There is no housing bubble. There are more people living in America and jobs are becoming more and more concentrated in a handful of states and urban centers.
Therefore, in many housing markets prices have gone up considerably - this is not a bubble, it is a natural outcome of the law of supply and demand.
In my town, housing prices have gone up 50% in the past two years. This is due to a combination of two factors that are being replicated over much of the country: (a) my town is conveniently located within an hour of NYC by train, bus, ferry and highway, (b) zoning laws limit the amount of land in my town that can still be developed.
Demand has grown and supply has remained relatively static.
This leads me to point
(2) America's savings rate is berated as low compared to high-savings countries like Japan.
However, most of Japanese savings are held in postal accounts - the US equivalent of passbook savings accounts. They pay minimal interest and are about the least profitable investment imaginable.
A very large number of Japanese and European people rent all their lives and never own a home.
In contrast Americans save their money in their homes, which are a good and profitable investment with a higher return than passbook savings accounts.
Yes, there are plenty of Americans who save nothing in a bank or in a home and live off maxed-out credit cards and from paycheck to paycheck. These peopel are not the majority and there are plenty of them in every developed country, not just the US.
That's not savings, it's an investment. You don't sell your house to buy groceries when you lose your job. You need to do both: invest wisely AND have plenty of available cash for hard times.
There are several problems with this analysis.
(1) The alleged housing bubble.
There is no housing bubble. There are more people living in America and jobs are becoming more and more concentrated in a handful of states and urban centers.
Then how do you explain the run-up of housing prices in remote areas, where there are no jobs, like Idaho, or the Central Valley in California?
There may be regions not effected by the Bubble, bit it's there, it's huge, and to deny it is insane. We had the SAME denials happening before and during the .com collapse.
"Therefore, in many housing markets prices have gone up considerably - this is not a bubble, it is a natural outcome of the law of supply and demand."
Not true. New housing is going up EVERYWHERE to support the "buy a home regardless of the risk" mania that's been happening. Vast tracts in Arizona are being built up with new McMansions (where there are no jobs).
"In my town, housing prices have gone up 50% in the past two years. This is due to a combination of two factors that are being replicated over much of the country: (a) my town is conveniently located within an hour of NYC by train, bus, ferry and highway, (b) zoning laws limit the amount of land in my town that can still be developed."
That's your town, it's anectdotal and not relevant to the national market or the issues at hand here. The problem is not supply and demand, as much as it's that ANYONE, literally anyone can get a loan right now, under extremely risky terms (no down, interest only, negative amoritization), and the frenzy to flip houses in the rising market brought in the speculators, who drove prices through the roof.
"Demand has grown and supply has remained relatively static."
In YOUR area. Look at the rest of the country, and the amount of new construction, lots demolsihed and rebuilt with 2 houses in the place of one, massive condo development in places like Florida and California. The mantra that's been thrown around of "They're not making any more land" is damning in the face of the amount of new housing available on the market, as developers have gotten restrictions eased and zoning changed. The same thing happened in the RE boom in CA in the late 80's - they built EVERYWHERE, and back then claimed a housing shortage, too.
Inventories have been rising slowly over the last few months. Read the facts. Some areas are still riding a price rise, but many markets slowing, and inventory is rising.
"This leads me to point
(2) America's savings rate is berated as low compared to high-savings countries like Japan.
However, most of Japanese savings are held in postal accounts - the US equivalent of passbook savings accounts. They pay minimal interest and are about the least profitable investment imaginable."
Irrelevant to the atter at hand - and ironically, teh Japanese housing market is a good example of what could happen here.
"A very large number of Japanese and European people rent all their lives and never own a home."
And that applies to us, how?
"In contrast Americans save their money in their homes, which are a good and profitable investment with a higher return than passbook savings accounts."
In the past, sure, equity in housing was king. But now, with refi's and the new "creative" lending, houses are ATMs, and people have been spending their equity on paying bills, buying plasma TVs and SUVs, and buying speculative housing, to flip it a year later. I have 3 relatives who spent ALL their equity in their houses, because they believe in a year or two, their property will be worth twice as much or more - what they failed to see, is the markets have peaked, and now with the Fed raising rates, all those creative loan packages are going to start hurting people badly.
"Yes, there are plenty of Americans who save nothing in a bank or in a home and live off maxed-out credit cards and from paycheck to paycheck. These peopel are not the majority and there are plenty of them in every developed country, not just the US."
I would say the opposite - I'd say that they represent the majority right now in a big way. Everyone, and I mean everyone from CEOs to $10 an hour Walmart employees are trying to play the RE game, and are still buying into the insane markets, expecting huge returns two years from now. RE agents and the reps of that industry have been helping these people to get into the game with inane blather about RE NEVER losing value, and that prices will continue to rise, and "Get in now, or be shut out forever!"
I'm saying we're facing a bigger bailout by the feds 5-10 years from now that will make the S&L bailout look like chump change.
I'm thankful that I saw the light of day this year and refused to be led to the slaughter with everyone else, and signed my soul onto a no-interest loan for a $200K house, but paying 600K. I have decent savings, pay less than 1/3 of my salary in rent, save the rest, and I'm betting your statements will be proven drastically and horribly wrong over the next year. A LOT of people are going to get hurt, but you keep claiming there's no bubble. That kind of talk really helped teh .com burst, did'nt it?
"America's savings rate is berated as low compared to high-savings countries like Japan."
Actually, its berated as well in comprison to its historical avg here at home.