Over the last year, there has been a lot of speculation about how Greenspan's policies with regard to interest rates have led to a massive bubble that is unlikely to deflate quietly.
This article by Gary Shilling provides some useful background on the subject... and some predictions.
The housing bulls are hardly prepared for the 5% to 10% peak-to-trough decline in prices that other housing bears and the futures market predict. The futures market indicates that the Case-Shiller Housing price index will decline 7.5% from its June 2006 peak to August 2007. Using median existing single-family house prices nationwide, a somewhat different series, we expect the decline of 4.6% from their October 2005 peaks to September of this year to extend to 18% by the third quarter of 2007 and to nosedive over 25% from the earlier peak to the final trough in the first quarter of 2008.
What will the impact of such a decline be on the global economy, and more particularly on the national/local economy of where each of us lives?In Australia there is a massive divergence in price increase for real estate. Perth is currently the most bullish real estate market with massive 46% increase year on year! But its hard to see it from Sydney where there is a microcosm of both price increases and decreases depending on the suburb. And the thing that continues to amaze is that in spite of the column inches devoted to global warming the area that drives the price increases the most is waterfront. Go figure.
