Why Home Prices Are The Next Bubble

Recently two economists from the Federal Reserve Bank of New York completed a study contending that despite the dramatic rise in housing prices there is no housing bubble. Raymond Sabat of EconomicBriefing.com has examined the report written by these two economists and discovered a glaring error which caused them to reach faulty conclusions

San Francisco, CA (PRWEB) July 9, 2004 -- Will real estate prices crash the way internet stocks did? Recently two economists from the Federal Reserve Bank of New York completed a study contending that despite the dramatic rise in housing prices there is no housing bubble. Raymond Sabat of EconomicBriefing.com has examined the report written by these two economists and discovered a glaring error which caused them to reach faulty conclusions.

Sabat explains that the record climb in housing prices is, indeed, a bubble and that the Federal Reserve study fails to consider past declining interest rates as a cause of the bubble. The faulty conclusions reached by Federal Reserve economists Jonathan McCarthy and Richard W. Peach may make many potential new home buyers comfortable about a purchase, when, in fact, we are very near the top of a housing market that will experience substantial declines in prices.

In his analysis Sabat explains why the housing price boom is a bubble and what to watch for to determine exactly when it will collapse. He explains that new structural features in the current housing finance market will make matters even worse. He forecasts that many new homeowners will walk away from their homes and their mortgages.

The faulty analysis," Sabat says, by Federal Reserve economists McCarthy and Peach may go down in financial history as the greatest forecasting error since Irving Fisher declared in 1929, just prior to the stock market crash, that stocks prices looked to be at a permanently high plateau."

The complete analysis by Sabat is available at the EconomicBriefing.com web site: http://www.economicbriefing.com/sabat/fedbubble.html

EconomicBriefing.com is an online daily report on finance, the stock market and the economy, providing links and original analysis for businessmen, political leaders, investors and those who desire to be well informed. Raymond Sabat is Editor & Publisher of EconomicBriefing.com.