January 19, 2006


There is no housing bubble, says senior economist (BATTINTO BATTS JR., January 19, 2006, The Virginian-Pilot)

“There’s a couple of shifts taking place in the economy,” said [Mark Vitner, senior economist with Wachovia Corp., ], who has been featured on CNBC. “We are shifting from a home-building economy to one of business investment.”

Numbers he presented, comparing change from a year ago , show that national spending on information processing equipment and software was up 11.1 percent during the third quarter of 2005. At the same time, other capital spending was up 10 percent. Also, nondefense capital goods orders were up 7.4 percent. [...]

The business investment numbers and employment growth are indicators that the economy is strong, Vitner said. He cited statistics showing the U.S. economy added 108,000 jobs in December and the civilian unemployment rate was 4.9 percent nationally and 3.5 percent in Virginia.

“The economy is shaking off the effects of the stock market bubble,” Vitner said.

The Wachovia economist cautioned against the perception that the housing market will be the next to go bust.

“Everybody is looking for evidence of a housing bubble,” he said. “There is not a housing bubble. The supply had not kept up with demand.”

Although the number of housing starts has begun to decline, that is an indicator that the supply is catching up, Vitner said. And he said the housing market continues to be driven by baby boomers who are retiring or close to doing so.

Vitner expects interest rates to remain low, a factor that will affect the number of people taking out mortgages on homes. Someone in the audience asked Vitner whether he was concerned that so many of the home buyers were financing their purchase through the use of interest-only or other nontraditional mortgage methods. Some experts have predicted that an increase in interest rates could lead to scores of loan defaults by buyers who have purchased more house than they can afford.

Vitner thinks that is an overblown doomsday prediction.

“It takes a lot to foreclose on your home,” he said. “If you just pick up the phone, the bank can work up a plan with enough payment holidays to get you through just about anything.”

You mean I'm not going to be able to trade my Pets.com shares for a house?

Posted by Orrin Judd at January 19, 2006 1:57 PM

Can someone with more economic know-how than me answer the following question--why not raise property taxes to extremely high rates for non-primary residences? That would presumably suppress the rampant speculation that some people like to complain about pricing would-be homeowners out of certain markets. Other than an aversion to taxation in general, what might be the arguments against doing this?

Posted by: b at January 19, 2006 2:43 PM

Wouldn't it be an indication of a housing bubble if building is up and population numbers are on the decline? That's the case in our county.

Posted by: Bartman at January 19, 2006 3:13 PM


Just not worth it. Just think of the court cases over defining "primary residence". Would the tax apply if your parents bought a house for you? Or made the down payment? What about vacation homes? The harm caused by housing speculation is a lot less than that.


Population isn't particularly important. You would want to look at households instead, which may well increase as the population shrinks. Moreover, it might well be that we're moving in to a situation where many households own multiple houses, like the snow birds or timeshares, etc.

Posted by: Annoying Old Guy at January 19, 2006 3:29 PM

b: It's probably unconstitutional. States are not allowed to discriminate against non-residents. Besides, why would we want to discourage a housing bubble?

Posted by: David Cohen at January 19, 2006 3:53 PM


Where do you live, Europe?

Posted by: oj at January 19, 2006 4:02 PM

David: But how would that discriminate against non-residents? If I live in LA & own a 2nd house in San Diego, my 2nd house would be taxed differently from my 1st (primary) home. Someone who lives in Boston & owns a 2nd house in San Diego would be treated exactly the same. I'm not saying that we should do this, just wondering why those who seem so concerned about a bubble don't propose things like this to dampen the speculation that they worry about so much...

Posted by: b at January 19, 2006 4:29 PM

b: That's the probably. But I still think that it would be found to be a burden on interstate commerce.

Posted by: David Cohen at January 19, 2006 4:39 PM

b: What if I RENT my 2nd (3rd, 4th?) house? Just try to imagine the wailing and gnashing when I pass along your artificially-inflated tax levy to my renters in the form of higher rent.

Posted by: John Resnick at January 19, 2006 4:41 PM

David: So what's up with public colleges charging exorbitantly more tuition for out-of-state students?

Posted by: b at January 19, 2006 4:45 PM

There's no national American housing bubble.

There are dozens of LOCAL bubbles.

Posted by: Michael Herdegen [TypeKey Profile Page] at January 19, 2006 7:25 PM

Which isn't a bubble.

Posted by: oj at January 19, 2006 8:25 PM

b: It's not all that clear that it is constitutional. The Supreme Court has suggested, in dicta, is that it is ok if it is possible for the student to become a state domiciliary and thus qualify for in-state tuition while attending school.

Posted by: David Cohen at January 19, 2006 11:04 PM

OJ -

To answer your question, no US bank would accept your stock as collateral, but the China Construction Bank just might.

Posted by: jim hamlen at January 19, 2006 11:06 PM

There wasn't a "stock market" bubble, either, just a sector-specific tech bubble.

Yet you believe that Pets.com stock is worthless.

So too will many Boston and Miami condo buyers rue the day that they signed the contracts.

Call it "green cheese" instead of a
"bubble", if you like - a rose by any name, etc. etc.

Posted by: Michael Herdegen [TypeKey Profile Page] at January 20, 2006 4:50 AM

Yes, there was an Internet bubble. There isn't a housing bubble or do you think houses in Boston will be worthless?

Posted by: oj at January 20, 2006 7:57 AM

many, many houses in mass will eventually be sold for less than the owner payed for them -- which is worse than worthless. oj's understanding of finace is on display here, and it isn't pretty. when you pay $800k for a condo, that falls in price to $300k, you are out $500k. because stock can't be leveraged 100% like real estate, you can only lose the money you actually invest in pets.com (assuming you don't borrow money from your broker), say $50k. but hey, don't let reality get in the way of fantasy.

Posted by: toe at January 21, 2006 2:37 PM

There's a condo shortage in Boston. How does a commodity for which there's excess demand fall in more than the shortest term and that caused by artificially high mortgage rates?

Posted by: oj at January 21, 2006 4:33 PM