Can anyone say “housing bubble?
” Somehow people in policy positions could not notice an $8 trillion housing bubble on the way up. Most still seem unable to notice it even as its collapse pushes us into the worst downturn since the Great Depression. Noticing the bubble is important for both housing policy and economic policy more generally. For housing policy, one question we should be asking about any plan to “help” homeowners is whether it actually helps homeowners. Specifically, we should ask whether, under the plan, the homeowner will be paying less or a similar amount in housing costs as they would to rent a comparable unit? Second, we should ask whether the homeowner is likely to have any equity when they move in 2-3 years, as most will. The answer to these questions in many deflating bubble markets will be “no.” In those cases, the plans are simply subsidizing banks and investors, not helping homeowners. The second reason that we have to notice the bubble is that our fundamental economic problem is replacing $
