Tags: Stockman | housing | bubble | sour

David Stockman: We’re in Midst of Another Housing Bubble

Tuesday, 05 Feb 2013 08:16 AM

By Dan Weil

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A bubble is brewing in the residential real estate market, thanks to the Federal Reserve’s massive easing program, and it’s not going to end pretty, says David Stockman, White House budget director under President Ronald Reagan.

Price and sales volume data have turned upward for housing, but these aren’t healthy gains, Stockman tells Yahoo. “We have a housing bubble again, we don’t have a real organic, sustainable recovery,” he says.

“In a world of medicated money by the central bank, things aren’t what they appear to be.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

The gains are most prominent in speculative, former sub-prime markets, “where massive amounts of fast money is rolling in to buy, to rent, on a speculative basis for a quick trade,” Stockman says.

“And as soon as they conclude prices have moved enough to produce a return, they’ll be gone as fast as they came.”

That will likely happen once the Fed begins to lift rates interest rates, he notes.

The two forces necessary for a sustained housing recovery, first-time buyers and trade-up buyers, will be missing for years, he says.

“All bubbles go sour,” Stockman adds.

University of Pennsylvania finance professor Jeremy Siegel couldn’t disagree more about the state of housing.

The market is so fundamentally strong in his eyes that “I don't think even a percentage-point up on mortgage rates is going to kill this market,” Siegel tells CNBC.

The average 30-year fixed mortgage rate is now 3.6 percent, according to Bankrate.com.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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