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May 20, 2005

Three Percent Drop or The China Scenario?

Globe_neep1_1Two weeks after we challenged frothy assertions about the housing market in a page one story in the Boston Globe, the real estate bubble is back on the front page.  This time instead of quoting brokers and builders, the Globe turned to a more credible source:  the New England Economic Partnership.  They forecast "a modest housing slump in Massachusetts that will last through early 2007, with prices, at the bottom, declining about 3 percent." 

While NEEP projects that falling prices will be offset by a strengthening regional economy, Princeton Economist Paul Krugman paints a much bleaker scenario in his editorial, The Chinese Connection, in today's New York Times. Here's a snippet:

"Here's what I think will happen if and when China changes its currency policy, and those cheap loans [to the US treasury] are no longer available. U.S. interest rates will rise; the housing bubble will probably burst; construction employment and consumer spending will both fall; falling home prices may lead to a wave of bankruptcies. And we'll suddenly wonder why anyone thought financing the budget deficit was easy."

Earlier this week, Krugman told an audience in Bangkok, "There is a real bubble mentality in the US housing market,'' adding that prices of US housing were 250% of their real values.

So if one's perception of the regional, national, and global economies determines one's belief about whether the housing bubble will deflate or burst, where do you stand?  We'd love to hear your perspective, particularly if you are buying or selling this Spring.  (If you do decide to buy despite the real estate bubble debate, we invite you to use our commission rebates as a cushion against a loss in value.  If you're selling, why not try for sale by owner to maximize your equity particularly if prices begin to slide in the second half of 2005?)

Co-authored by Bill Wendel and Douglas McCarroll, our newest real estate consultant / buyer agent at The Real Estate Cafe

11:26 PM in Downward pressures, Predictions prices will fall | Permalink


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Just my $.02. I am looking to buy a condo this summer in the range of $275 - $325,000. I am definitely concerned about the possibility of a bubble. I am considering renting until I can get a better picture of what the market will do. And, if I do buy, I will be careful about what I pay for a property. I would rather let someone else have it than pay too much.

Posted by: kilfarsnar | May 31, 2005 4:50:21 PM


We recognize that each buyer / households have their own reasons for buying, so we'd be interested to learn more about your own thinking. Are you located in Boston? If so, would you like to meet / network with some other people who are still in the housing market, despite their concerns about the housing bubble?

If you'd like to get together, The Real Estate Cafe is interested in hosting a monthly "Bubble Hour" to talk about defensive home buying strategies and exchange perspectives with other homebuyers.

Thanks for your comment.

Posted by: RealEstateCafe | May 31, 2005 8:11:05 PM

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