Considering the reality that only the top 5% have benefited from the policies of the past six years, it’s difficult to see how the Echo Bubble can continue expanding in 2015.
After two years of bubble-type price increases, the big question for housing in 2015 is: will the Echo Bubble continue expanding, or will it follow its 2002-2007 sibling’s epic bubble pop and decline? To answer the question, we first need to identify the key trends that have enabled the expansion of the Echo Bubble.
There are three key dynamics underpinning housing’s Echo Bubble.
The unprecedented intervention of the Federal Reserve to push mortgage rates to historic lows.Nothing fancy here; lower rates serve two purposes central to the policies of central banks everywhere: they enable marginal buyers to qualify to buy homes, and they boost prices higher.
The post-2008 slump in housing construction and the demand for rental housing pushed inventory down and demand up. This led to a classic imbalance of supply and demand: as demand by investors and overseas buyers rose, inventory fell. Prices naturally skyrocketed in areas with tight inventory and high demand.