Demos Report: Housing Bubble Could Be Coming

Despite claims by the Federal Reserve Board that fears of a housing bubble have been exaggerated, data suggests that consumers are not saving at all but rather are continuing to borrow more to get into homes, according to Dean Baker, co-director at the Center for Economic Policy and Research.During a public forum hosted in New York by Demos: A Network for Ideas & Action, Mr. Baker said housing prices have increased in major areas of the country where the bubble makes up a large chunk of the economy - California, New York and Washington D.C. In the bubble-inflated areas, he said turnaround can be 30% less than what the homeowner paid for the home. In terms of the macro-economy, if construction falls off at a national level, the housing market could take a major hit, Mr. Baker said. Also adding to the compelling case for a bubble is if rent prices begin to outpace inflation. Barbara Corcoran, founder and chairman of the Corcoran Group of New York, is not open to the possibility of a bubble. As a real estate broker she likes the idea of interest rates creeping up, because homeowners can absorb it better than if rates skyrocketed all at once. In New York City, she said seven out of 10 listings at her firm are selling at or above the asking price.