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Economic Surprises That Are Predictable

Comments 8/24/2011: this topic also shows some of the problems with the almighty internet.   The Housing Bubble Blog is still active, although I haven’t visited in a long time (IMHO after the bubble really popped in 2007 the commentary often veered off in odd directions).  Housing Bubble Casualty is basically dormant, and a number of blogs (such as viewfromsiliconvalley.com ) have totally disappeared.

I’m still going to stay off politics, but it does amaze me that many (most?) people are perplexed by the current financial crisis.  Although the exact details couldn’t be predicted, the fact that the US had a housing bubble in 2004 was obvious to anyone who looked clearly at the facts (house prices were going up faster than the fundamentals, e.g. medium house price versus medium income, house price versus rent, etc).  It was also obvious that many of the loans (e.g. Interest Only, Neg-Am, Option-ARM) were never going to be repaid, as they relied on house prices increasing.

Anyone who has lived in Silicon Valley since 1998 definitely has no excuse for getting caught up in the housing bubble after seeing the rise, the hype (“it’s the new dot-com economy and the old rules don’t apply”), and fall of the dot-bomb bubble.

And, yes, being able to see bubbles has practical applications; for one, chasing the latest bubble isn’t the best career path.

If you want to see the craziness that was going on, and the fact that some people called the bubble in 2004 or earlier , look at the archives at the Housing Bubble Blog or Housing Bubble Casualty.  Christopher Thornberg was one of the few economists to get it right.  Finally, it’s important to note that the housing bubble is in fact world wide (UK, Spain, China, etc) and started first outside the US.

Tony

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