Thursday, May 12, 2005

Professor Says no Bubble in NJ

[“No, there's no real-estate bubble in New Jersey, and no, housing prices won't fall off the table.

Just don't expect gigantic appreciation in the years to come.

That was the message of Joseph Seneca, professor of economics at Rutgers University and chairman of the New Jersey Council of Economic Advisers.”]

The professor gives some good reasons why he does not think the bubble is going to pop in NJ. However, I don’t think he appreciates how much the cheap credit is responsible for the current housing boom, and therefore doesn’t understand what will happen to house prices when the “punch bowl” of cheap interest rates is taken away.

The overall economy, ignoring interest rates, doesn’t seem much different from the economy of the late 90s, and real estate price growth was more subdued back then. The key driver currently, given approximately the same GDP growth and unemployment rate now as is 1998, is interest rates that are 300 basis points lower.


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