The Bubble Reinflates

This is mildly disconcerting. Megan Mcardle describes bidding wars breaking out over houses in DC. One house had over a hundred offers and prices are heading into the stratosphere again.

I’m not familiar with DC, but I am interested in the general question of whether we are we in danger of another housing bubble. Interest rates are ridiculously low, which tends to drive up housing prices (people who are spending less on debt service can afford more principle). We still have active federal programs to forestall foreclosures and help people refinance. DC, specifically, has had an effective moratorium on foreclosures.

I’m not ready to be alarmed yet. The broader measures of real estate show national real estate prices hovering near pre-bubble levels. But it would be just like us to not learn the lesson of the 2000’s. And just like the government to make it possible.

(In other mortgage news, a study has indicated that the Community Reinvestment Act was a huge contributor to the financial crisis. CRA-covered loans ramped up to $6 trillion in the bubble. I would take this with some salt — low interest rates contributed as did pressure from above to create loan for CDS’s and CDO’s: the instruments that brought the major banks to their knees. But we’re getting to the point where it’s simply untenable to pretend that the CRA played no role in what happened. Not that this will stop people from pretending it didn’t.)

  1. This isn’ coincidental Hal. Check the post I put above for an explenation of why we are seeing this problem, and then only around places like DC.

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